Merge or Die: Are Mergers the New Growth Catalyst in a Sluggish Economy?

As 2014 begins to take shape, many in the M&A industry are worried about a repeat of 2013, when conditions seemed ripe for deal making but those deals failed to execute.  Other than several mega deals, 2013 was largely disappointing. For context, world wide M&A was $4.27 trillion in 2007 on more than 40,000 transactions. Only a year later, 2008, we saw that amount fall to $1.9 trillion. Reuters estimates that private equity firms ended 2013 with $1.074 trillion in dry powder. Bain Capital has postulated that there is $300 trillion in capital laying dormant around the world that could be used for M&A. Capital is also still cheap, as interest rates remain relatively low. So, with all of these things pointing towards more deals being executed, when will it begin? In a recent article from Institutional Investor, Robert Teitelman postulates that there could be a "new normal" in terms of how companies grow. In a low growth global environment, he says, acquisitions are one of the only ways to increase the size of your business. US GDP was a healthy 3.2% in Q4 2013 after being 4.1% in Q3, but other parts of the world are not showing that same growth. Most expected M&A activity to be back to pre-crisis levels by now, considering the health of the overall stock market and US economy. However, it has only rebounded to mid 2000s levels. Chris Ruggeri is a principal in Deloitte’s financial advisory unit and leading manager of the firm’s M&A practice. She summed up the lack of deals by saying, “We’ve been sort of stuck. Confidence fuels growth. And growth fuels M&A. To get growth, you need confidence. It’s not there.”  Let's hope the confidence returns and deal makers start pulling the trigger, or 2014 could be a repeat of 2013.

CCCA Economic Dashboard: February 7th, 2014

Below is the CCCA economic dashboard as of February 7th, 2014. Click here to view a larger image.

CCCA Economic Dashboard: January 31st, 2014

Below is the CCCA economic dashboard as of January 31st, 2014. Click here to view a larger image.

CCCA Economic Dashboard: January 10th, 2014

Below is the CCCA economic dashboard as of January 10th, 2014. Click here to view a larger image.

CCCA Economic Dashboard: January 3rd, 2014

Below is the CCCA economic dashboard as of January 3rd, 2014. Click here to view a larger image.

CCCA Economic Dashboard: December 27th, 2013

Below is the CCCA economic dashboard as of December 27, 2013. Click here to view a larger image.

CCCA Economic Dashboard: December 20, 2013

Attached is the CCCA economic dashboard as of December 20, 2013. [More]

KPMG: Deal Activity in 2014 Expected to Improve

KPMG recently released the results of a survey given to over 1,000 deal makers with regards to 2014 M&A prospects. In short, deal activity is expected to improve in 2014. However, 2013 was also heralded by many as the year that would see M&A really take off and it didn't quite come to fruition.  Several mega-deals notwithstanding, 2013 fell short of expectations. So what makes 2014 different?   According to the survey, deal makers felt relatively positive about the environment and 63% of respondents said they planned to be acquirers in 2014. Most of this optimism was the result of large cash reserves, favorable/available credit terms, improving equity markets and improved overall confidence. However, as one investment banker put it, deals should most likely increase "because next year can't possibly be as bad as this year." This is where the questions really start. Many of the economic drivers present at the beginning of 2014 were also present in 2013. Private equity has piles of dry powder, corporate balance sheets are stocked with cash and money is cheap to borrow. However, all of these factors were also present in 2013. Instead of an increase in overall activity, we saw an increase in PE exits. So why would activity suddenly increase? According to the results below, most respondents expected targets to "become available." From our experience in the market, there are plenty of motivated buyers, but quality companies wanting to sell have been scarce. If this situation changes in 2014, the activity will most likely be very high. Some companies that we've spoken to have been anxious to eclipse pre-recession levels before having a liquidity event. Others are optimistic about the market in general, and want to leverage their growth opportunities utilizing cheap borrowed capital. The latter of those reasons won't change in 2014, but if some companies reach their targeted EBITDA numbers, sales could increase.   Click here to read the full report from KPMG. Hopefully, the conclusions drawn from their survey will come to fruition and 2014 will be a "solid" year.

CCCA Economic Dashboard: December 13th, 2013

December 16, 2013 16:55 by Clayton Reeves in Capital Markets, Economy  //  Tags: , , , , , ,   //   Comments (0)
Attached is the CCCA economic dashboard as of December 13th, 2013. Click here to view a larger image.

CCCA Economic Dashboard: December 6th, 2013

December 9, 2013 15:08 by Clayton Reeves in Capital Markets, Economy  //  Tags: , , , , ,   //   Comments (0)
Attached is the CCCA economic dashboard as of December 6th, 2013. Click here to view a larger image.

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