Mid-Year M&A 2017: Remarkably Resilient

Mostly, the news is excellent. Stock market indexes are reaching record highs, corporate earnings are trending upward, global markets remain strong, and an active M&A market continues.

The U.S. economy is outpacing most other developed markets, remaining remarkably resilient and positive in reaction to a variety of political outlooks, policy agendas, and geopolitical fears. From diverse sources, the theme is consistent: it’s steady-as-she-goes for the balance of 2017.

2017 U.S. M&A Is Up 17.3 Percent Compared to 2016

A key theme of 2017 M&A—as described in a new J. P. Morgan report—notes that: “We anticipate consistent deal volume in 2017 as companies face continued pressure to complement modest organic growth. Activity will be encouraged, in part, by low cost of funding and positive acquirer share price reactions…as we move into 2017, a number of factors point toward an active deal environment.”

JPM continues: “As markets adjust to ongoing political and regulatory changes, the M&A market should be buoyed by strong fundamentals and the potential for pro-business policy changes. In particular, opportunities may emerge from potential new U.S. policies, such as cash repatriation, corporate tax reform, and more modest regulation.”

Thomson Reuters reports U.S. M&A activity in the first half of 2017 featured more announced deals than in the first half of 2016 (up 17.3 percent, from 5,544 to 6,504). “Bottom line: we’re seeing an increase in small deals and distressed deals in the U.S.”

During the first half of 2017, all sectors saw an increase in exit multiples except for healthcare, media and entertainment, and real estate. “Overall average EBITDA multiples across industries in the Americas posted an increase during the period, rising to15.9x compared to 12.3x averaged during the first half of 2016,” according to the Reuters report.

Cross-Border M&A at 10-Year High Powered by Outbound U.S. and Inbound European M&A

Worldwide deal making is up, too. Reuters reports that “Powered by increased levels of outbound M&A from acquirers based in the U.S. and inbound M&A for European assets, cross-border M&A activity totaled US$630.9 billion during the first half of 2017, accounting for 40 percent of overall M&A volume and the highest first-half tally since 2007.”

As companies continue to look for strategic growth, cross-border transactions may continue to supply a source of value creation with new regions providing exposure to different market and economic conditions, and consumer dynamics.

A mid-year PricewaterhouseCoopers LLP (PwC) review, sees it this way: “With a stable economy and currency, the U.S. will likely continue to attract overseas investors. And, odd as it might seem, ‘buy American, hire American’ signals from Washington could boost interest. Buyers might see taking a stake in the world’s largest consumer market as insurance against isolationism.”

The U.S. Economy Continues to Improve

In July, The Conference Board announced that the U.S. Leading Economic Index (LEI) improved for the third straight month, suggesting the economy may experience further improvements in economic activity in the second half of the year, with gains in financial indicators, new orders, and sentiment.

“After being elected on a promise to disrupt Washington, President Donald Trump now finds his legislative agenda stalled, his administration shrouded in controversy, and his approval ratings at record lows. Yet the U.S. economy continues to improve,” according to a Waddell & Reed, Inc. report. Plus, global markets remain strong, despite continuing geopolitical uncertainty.

An Active M&A Market Lies Ahead

“Businesses appear to be giving a vote of confidence to an economy growing steadily, if not spectacularly. They’re still striking deals and taking long-term opportunities. They’re getting on with growth and likely won’t be knocked off their stride by turbulence in Washington,” according to PwC.

PwC continues: “Based in part on performance to date and the lack of significant disruption so far in 2017, we see the deals market likely holding steady for the rest of the year. Activity has broadly mirrored 2016 so far, and it will take a large, unexpected development to blow it off course for the rest of the year.”

With deal volume up 17.3 percent at mid-year, we believe mid-market buyers and sellers will be feeling an increasing sense of urgency—and confidence—in this healthy market. But making timely, informed, strategic M&A decisions is critical. FOCUS is here to help.