As we begin 2017, the 1,000 corporate and private equity executives surveyed for Deloitte's M&A Trends Year-end report 2016 display optimism for the coming year. The survey was conducted in September 2016 and included participants from companies or private equity firms with annual revenues of $10 million or more, representing 18 industries.
Respondents expect a rebound year from 2016, with 86% of surveyed private equity and 71% of surveyed corporate dealmakers expecting to close more deals this year. Not only is deal volume expected to increase, but 64% of all respondents also expect deal size to increase. Divestitures appear poised to be a focus of 2017 transactions, with 74% of respondents reporting plans to sell units or assets, up from only 31% in last year's survey. This positive outlook is consistent with the findings of Ernst & Young's Global Capital Confidence Barometer survey, discussed previously.
Strategic drivers
Survey respondents indicate that the top strategic drivers of M&A activity this year are:
- expanding product offerings or diversifying services (22%);
- expanding customer base in existing geographic markets (19%); and
- acquiring technology assets (19%).
Compared to 2015, the acquisition of technology assets increased in importance dramatically, having been the top driver of M&A strategy for only 7% of respondents last year. Companies also report increased cash reserves, which 43% intend to use primarily to seek M&A opportunities.
On the other hand, survey respondents cite global economic uncertainty, volatility in capital markets, the interest rate environment, and anti-trust issues as having the potential to thwart deal flow.
Brexit: an M&A opportunity?
While it has been noted that domestic UK M&A and inbound UK M&A are both down by over 60% since the Brexit referendum, some see Brexit as an opportunity for M&A. According to the respondents of the Deloitte survey, the UK continues to rank highly among markets in which they plan on pursuing deals. Many even said that Brexit's impact would generate more M&A deals in the UK (46%) and Europe in general (48%).
Prime Minister Theresa May has announced that she intends to begin the formal Brexit process before the end of March 2017. However, a legal challenge which would force Parliament to give its approval before the Brexit process can begin is still underway. Though the decision is unlikely to halt the British withdrawal, it will be of continuing interest to monitor how the Brexit process impacts M&A in 2017, along with the US presidential transition.
The author would like to thank Simone Nash, Articling Student, for her assistance in preparing this legal update.
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