February 22, 2013

2013 M&A Off to a Strong Start with Several Blockbuster Deals

With 2012 now in the rear-view mirror, investors are fully focused on 2013 and what the year will bring in terms of M&A. According to FactSet Research, M&A volumes and values in 2012 deteriorated from 2011, total deal value fell around 7% and volumes decreased 2%. However, particular sectors including Brokerage, Investment & Management Consulting, Communications, Banking & Finance, and Energy Services, all experienced significant improvements in M&A activity compared to 2011. Electric, Gas Water & Sanitary Services, Oil & Gas, and the Drugs, Medical Supplies & Equipment sectors on the other hand experienced the largest decrease in total deal value last year. So what are the expectations this year?

KPMG’s 2013 M&A Outlook Survey suggests a healthy 2013 market citing improved consumer confidence, record levels of cash on-hand, historically low interest rates, and strong gains in the stock market. Over a third of survey participants indicated they were more optimistic about the deal environment and most respondents expect the most activity to come from the software technology sector. While the largest factor inhibiting deal activity remains a constant fear of recession or slow economic growth, the survey indicated that greater certainty surrounding the political and fiscal U.S. environment, coupled with an improving debt crisis situation in Europe, will lead to a robust M&A market. The Mergermarket Group’s 2013 Outlook survey also offers a positive perspective on the deal environment – in fact, the majority of participants expect M&A to increase this year. The report indicated that strong growth is expected from attractive targets across emerging markets, mainly Asia-Pacific and Latin America, as well as Europe. The general market consensus points to a bright 2013 M&A environment – at Clearsight, we are seeing this trend come to fruition.

While there is only one full month under the belt of 2013, several large-scale transactions have already made waves in the headlines. Michael Dell and Silver Lake announced a $24 billion deal to bring Dell private, American Airlines and US Airways announced a merger to create the largest airline in the world, and Berkshire Hathaway and 3G Capital Management are now acquiring H.J. Heinz for roughly $28 billion. These transactions alone will boost deal value significantly, and they may not be the only high-profile deals that shock investors over the next couple quarters. This year may finally be the time for companies to start putting their mountains of capital to work through inorganic growth strategies. As larger corporations take advantage of historically low valuations across multiple sectors, we expect the positive expectations regarding M&A in 2013 published over the past month to slowly become the reality.