For the balance of 2016, three broad factors are likely to influence M&A activity: politics (no surprise there), tech deal traffic (good news there), and the continued abundance of available capital (money on the table).
A new study by the international law firm White & Case—Slow but Steady: US M&A H1 2016—concludes that despite a slower first half, the underlying drivers of M&A activity remain strong:
“After two blockbuster years, the first half of 2016 has brought M&A activity back to normal levels of activity, with fewer megadeals and generally lower deal values. Although deal flow is lower than last year, H1 2016 is in line with historically strong M&A trends…
More broadly, the conditions that have driven M&A around the world for the past two years have not fundamentally changed and so we expect a very busy second half.”
Plenty of Reasons for Optimism
While there are clear signs of cooling in the first six months of 2016, there definitely is potential for bigger deals in the second half. On a year-to-year basis, US M&A deal volume is down 11 percent, but maintains historically robust levels. Values are down 30 percent, and regulatory challenges have stopped some larger deals recently.
The new study expects future M&A activity to focus on the technology sector where not only the number of deals, but also the economics have remained stable and viable, noting that, “The rapid pace of technological change can make it more practical for established tech companies to buy innovative start-ups rather than investing in their own R&D channels—a process that would be facilitated by many buyer’s cash-rich balance sheets.”
“Most Conditions for a Busy End-of-Year Remain in Place”
In the surging “heat dome” conditions of midsummer, there is a slowdown in activity as middle market M&A activity takes a short breather. The Slow but Steady study concludes:
“We think the US M&A market…will come back strongly in September, absent some big exogenous shock…with lots of cash, low interest rates, strong stock markets (notwithstanding the elections and Brexit), and plenty of strategic imperatives in many industries that can best be satisfied through acquisitions.”