The March Group, a private mergers and acquisitions firm, is predicting an uptick in middle-market M&A activity, spurred by private equity firms flush with cash and eager to exploit
The March Group, a private mergers and acquisitions firm, is predicting an uptick in middle-market M&A activity, spurred by private equity firms flush with cash and eager to exploit attractive company valuations.
‘There is tremendous pent-up deal demand that has been sitting on the sidelines for the past year,’ says The March Group’s director of research Carl J. Doerksen. ‘The opportunities for unprecedented returns are going to be too good to pass up much longer.’
The cumulative amount of private equity fundraising overhang – the gap between funds raised and equity invested – stands at USD400bn, an all-time high according to The Alliance of Merger & Acquisition Advisors and PitchBook Data, a private equity-focused research firm.
At the same time, company valuations are relatively low when compared to middle-market valuations prior to the recession. This sets the stage for some very profitable dealmaking.
"There is no doubt that within the next 18 months, some of the deals that get done will be looked upon as the most lucrative, potentially in the last couple of decades," Robert Filek, a partner in the transaction services group of PricewaterhouseCoopers, was quoted as saying in a PWC report.
According to The March Group, sectors that offer especially lucrative M&A opportunities include the following:
• Energy – with oil prices now less volatile and earnings expected to rise, this sector is highly attractive to buyers and potential partners.
• Healthcare – considered recession resistant, buying companies in this sector is a good way to diversify a portfolio. Many healthcare firms will be looking to reposition themselves after the passage of President Barack Obama’s healthcare plan.
• Pharmaceuticals – big pharma will be buying firms to fill their product pipelines, while shedding nonstrategic branches/subsidiaries.
• Tech – ripe for consolidation
Eighteen new funds raised USD25bn in April and May of this year, according to John Gabbert, founder of PitchBook: ‘As economic conditions continue to stabilize and the credit markets start to reopen, the private equity industry is poised to get back to dealmaking."
