M&A: A Leading Growth Strategy in 2015

In a 2015 M&A Outlook Survey, KPMG and Mergers & Acquisitions magazine surveyed over 735 M&A professionals from U.S. corporations, investment banks, and private equity (PE) firms. The Survey reports that, “Despite global concerns, U.S. deal makers are encouraged by low interest rates, record stock prices, improving employment numbers, and an abundance of cash.”

Better yet, “M&A in the U.S. has finally reached pre-recession levels. Deal value in the first three quarters of 2014 reached almost $1 trillion. The 5,843 deals announced during the period are among the highest on record and represent a seven percent increase in volume and a 33 percent increase in value from 2013… It appears that deal-makers are willing to pay a significant amount for targets that meet their strategic and growth objectives.”

Momentum Is Building for Acquisitions

Based on results of the Survey, apparently U.S. companies feel very comfortable using their balance sheet cash to grow through acquisitions: “An impressive 82 percent of respondents said they were planning at least one acquisition in 2015; 19 percent planned to make two acquisitions; 11 percent planned three acquisitions, and ten percent planned 11 or more deals for the coming year. Respondents… report considerably more expected acquisitions than in previous years.”

Buyers are Motivated by Strategic Opportunities

In general, investors are encouraged by current economic trends, available capital, and favorable debt terms. At the same time, quality trumps quantity as investors request more robust growth strategies. When queried about preferred 2015 exit strategies, 64 percent of Survey respondents said, “a sale to a financial buyer, 10 percent cited an IPO, and 8 percent said companies would choose to refinance or raise debt… 85 percent of those surveyed expect to make at least one investment next year.”

In 2014, the large number of mega-deals caused global deal value to increase at a much higher rate than deal volume. Survey respondents noted that, “acquirers have learned the lessons of the past and are paying more attention to finding the right strategic fit.”

Expect 2015 Rise in Deal Values

According to the Survey, “most respondents continue to believe that the M&A environment will be dominated by smaller and middle-market deals… For their companies, 50 percent of all respondents said that the average enterprise value per acquisition would be less than $250 million… Deals are getting larger, in part, because corporate profits and corresponding valuations are increasing.”

Industries Predicted To Be Most Active in 2015 M&A

Survey participants were asked what industries would be most active in M&A in 2015: “Not surprisingly, the industries… expected to be the most active in terms of M&A are those undergoing the most transformation.” Here are the Survey results:

84% Healthcare/Pharmaceuticals/Life Sciences

62% Technology/Media/Telecom

36% Energy/Oil & Gas

34% Consumer Markets

30% Financial Services

24% Industrial Manufacturing

Of course, each industry category is working in its own specialized deal environment, as well as facing industry-specific opportunities and challenges.

The Boom is Back

The 2015 M&A Outlook Survey concludes on a positive note: “M&A professionals have waited for several years for the malaise of the recession to pass. It appears that in 2014, deal makers embraced M&A with enthusiasm, and respondents expect 2015 to also be an extremely active year. The fundamentals of healthy credit markets, abundant cash reserves, and improving employment numbers all indicate that (Survey) respondents should be right.”