Earlier this month, we reported on the slow-down of M&A activity in the first quarter of 2016. Despite this challenging start to the year, a new report from Deloitte & Touche LLP entitled “M&A Trends Report 2016” found that executives remain optimistic about M&A activity going forward. The report provides that 87 percent of the 2,300 U.S. survey respondents said that they expected their deal activity to match or exceed 2015, which was the busiest year ever for mergers and acquisitions.
Respondents in Deloitte & Touche LLP’s survey expected that technology would be the top industry for M&A activity through the rest of 2016, with 26 percent of corporate respondents and 25 percent of private equity investors rating it the most likely sector to see a growth in M&A activity. The authors of the report opined that this may be due to the convergence of technology with traditionally analogs sectors, an evolution that would open a number of new opportunities for deal-making.
The report also found that there was a strong uptick divestiture as an option to build value. 52 percent of people surveyed expected to pursue a divestiture this year, up from 31 percent in 2014. The authors of the report believe that this surge in divestiture interest is underpinned by a desire for conglomerate firms to get back to basics. By divesting non-core assets, businesses can achieve higher value for the remaining assets.
However, the report was not uniformly bullish. 32 percent of corporate respondents and 26 percent of private equity investors cited global economic uncertainty as the top influence on deal activity. Economic concerns overtook a number of other factors, including strategy, planning, valuation, and pricing as the number one factor in influencing deal success. Concern was focused on European markets, such as the UK, France, and Italy, as well as Brazil, where the economic and political upheaval have caused both corporate respondents and private equity investors to indicate that they would be pursuing fewer deals there as compared to 2015.
Deloitte & Touche LLP concludes that M&A activity may pick up after its slow start in 2016. A number of positive factors exist which could come together to feed the pace of M&A activity, including historically low interest rates, stabilizing equity markets, companies that are well stocked with cash, and relatively high stock prices. As long as concern over economic conditions doesn’t continue to overshadow those positive conditions, M&A activity may once again match last year’s record pace.
The author would like to thank Scott Pollock, articling student, for his assistance in preparing this legal update.
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