Ongoing access to capital and financing, strengthened balance sheets and divestiture activity will continue to fuel deal activity in 2013, according to PwC US.
An acceleration of deals taking place during the final months of 2012 may result in a lull in activity during the first quarter; however, these sound deal fundamentals are creating optimism that the balance of 2013 will be a stronger year for US mergers and acquisitions (M&A).
According to PwC’s US M&A outlook, dealmakers remain hyper vigilant on diligence during the M&A decision making process, analysing each outcome and the various impacts on investment and return scenarios to achieve certainty of deal success.
"The fundamentals for sustained M&A activity in 2013 are solid, with improving corporate confidence, increasing private equity activity from both a buy and sell side perspective, and relatively healthy debt markets. There remains strong competition for quality assets as both corporates and private equity continue to seek out deals to fuel their growth and deploy capital," says Martyn Curragh, PwC’s US deals leader. "We’ve been supporting a range of buyers and sellers across a broad spectrum of industries, helping them raise capital through high yield offerings and providing diligence and valuation analyses for potential deals. Dealmakers have been very cautious and disciplined in evaluating transactions. They are placing a premium on a thorough analysis of potential risks and exposures and are seeking to ensure there is broad functional support to successfully manage deal execution and reduce the risk of value leakage."
With capital ready to be deployed, along with the increasing availability of financing, PwC expects companies and financial sponsors to use M&A to enhance their growth prospects in the new year. Corporate cash levels remain steady at USD1.1trn for the S&P 500, indicating continued opportunity for companies to put their capital to work through M&A. In the 11 months ending November 2012, there were a total of 7,585 transactions representing USD705bn in disclosed deal value. In October alone, deal value spiked to a 14 month high, reaching USD96bn and with 754 deals, October was the most active month since August 2011.
In terms of deal size – and with the absence of "transformative" mega deals – middle market deals have been the "silver lining" for deal activity, accounting for 98 per cent through November in 2012. PwC expects this trend in middle market deals to continue in 2013.
"Both corporate and private equity players are thinking about transactions to expand market share, build brands and fuel their long term strategic plans. In today’s environment, companies must be agile to act with discipline, speed, and unbiased thoroughness to execute when a good potential acquisition comes to market," says John Potter, deals partner at PwC. "A recent poll during our M&A integration webcast found that 89 per cent of executives expect to see similar or increased M&A activity over the next year, with 45 per cent expected to plan a deal within the next six months. Deal making, whether by acquisition or divestiture, is very much at the top of the agenda for those pursuing new growth opportunities in 2013."
In light of available cash and growth strategies, a desire to get deals done has heightened the competition among corporate and private equity buyers. According to PwC, more bidders are taking a longer look at a given target over the past 12 months.
