Merger and acquisition activity is expected to increase in 2013, according to a survey conducted by KPMG, the US audit, tax and advisory firm, and the research practice unit of SourceMedia, the publisher of Mergers & Acquisitions.
The survey of more than 300 M&A professionals in the US found that 76 per cent of respondents anticipate that their company will make at least one acquisition in 2013.
According to 60 per cent of the M&A professionals, companies’ large cash reserves will drive deal activity and 40 per cent acknowledged favourable credit terms as a supporting factor. Opportunities in emerging markets will also be a catalyst for deals, said 26 per cent of respondents.
Primary reasons for making acquisitions varied among the survey population, with 20 per cent of respondents reporting that expanding geographic reach would be their primary motivator, while 19 per cent cited a quest for profitable operations, followed by 17 per cent who anticipated making acquisitions in order to enter a new line of business.
"Although there is still plenty of uncertainty in the markets, we will likely see M&A activity pick up as the year progresses," says Dan Tiemann, Americas lead for KPMG’s transactions and restructuring practice. "Financing conditions continue to be positive. Many companies are holding large amounts of cash and the US debt markets remain open. As part of efforts to pursue their growth agendas, companies will look to execute transactions that align with their business priorities and strategic road map."
Deal size is expected to remain on the smaller side, similar to 2012. Seventy-nine per cent of the survey population expects their deals to be valued at USD250m or less, and 12 per cent foresee deals valued between USD250m and USD500m. Only two per cent expect to engage in deals valued between USD1bn and USD5bn.
The survey also examined respondents’ projections for M&A among specific industries, which indicate possible increased activity in the technology sector (39 per cent), healthcare and pharmaceuticals sector (35 per cent), and energy sector (31 per cent). When asked which region would experience the most deals in 2013, 73 per cent of respondents cited North America. Western Europe and China garnered 28 per cent and 27 per cent of responses, respectively.
Marc Moyers, KPMG’s national sector leader for Private Equity, agrees that technology and healthcare will continue to be attractive, especially for private equity investors.
"The constantly evolving world of technology and investment opportunities that arise as we get more clarity around Obamacare will create attractive opportunities in those sectors," he says. "Private equity investors will continue to seek out U.S. companies with significant upside potential, as well as emerging markets with strong growth opportunities."
Additionally, nearly two-thirds of the M&A professionals noted that deal activity would likely be most inhibited by recessionary fears and a slow growth environment. Thirty-one per cent would credit sluggish deal activity to uncertainty surrounding the tax code, whereas concerns about Europe were cited by 23 per cent and regulatory considerations by 20 per cent.
Sixty-nine per cent of survey respondents said they considered tax implications at the outset on a deal.
"Every transaction – merger, acquisition, or restructuring – has tax implications," says Lisa Madden, US leader for KPMG’s M&A tax practice. "How the business is transferred, what jurisdictions the business operates in, and where the acquisition financing is placed within the enterprise can all have a major impact on the way a deal is structured and, perhaps most important, on its final value for stakeholders."
Integration challenges should also be analysed at the inception of a deal. Survey results concluded that the most significant integration concerns are cultural issues (38 per cent), human capital issues (36 per cent), and operational and rationalisation issues (34 per cent).
With the prospect of significant synergy opportunities and the impetus to pay a higher price for assets to support long-term economic and strategic goals, corporate buyers will have an advantage over private equity buyers in the current deal environment, said 44 per cent of the survey population. Thirty per cent of respondents thought private equity buyers would have the advantage, while 17 per cent responded that neither party would have the advantage.
