M&A activities in the US have withstood many turbulent times. The first half of 2017 was strong for the US, but it had a poor third quarter, as compared to the third quarters of 2014 to 2016. The causes for this were a drop off in the M&A that was China-bound and escalating transpacific tensions. As a result, UK companies became the top acquirers of US companies.
US dealmakers turned cautious in the latter part of 2017, due to escalating tensions between North Korea and the US, the damage brought about by the hurrican season, lack of visibility on policies proposed by the administration, and continued political unrest.
In 2018, an acceleration of M&A activity is to be seen, thus affecting the size of transactions and the number of deals. M&A pursuits are driven primarily by technology acquisition. In the US, the unanimous sentiment among corporations and leaders is that the M&A deal size is likely to increase.
Concerns like political and regulatory uncertainty, the economy, valuations, and market volatility have been reasons why the environment for domestic M&A has been muted. Such concerns are diminishing this year, however, delayed legislation can be a potential obstacle. Pro-business legislation, including tax reform, can help abate the said concern.
To many companies, moving ahead with deals is a better and less riskier choice than sitting and waiting for more clarity around tax reform. This attitude is driven by the need for growth and scale. Businesses constantly need to update themselves so that they can sustain their competitiveness. This is because competitive pressures arising from digital and technology disruption are able to virtually affect all industries.
New M&A technology tools are being used to receive assistance with reporting and integration. Such tools help reduce time, costs, and conflict – which turn out to make more deals work.
Talent acquisition is an upward trend and acts as a motivation for M&A strategies. Digital strategy is a driving force behind M&A deals in 2018.
Large firms with investments and revenue in excess of $1 billion dollars are showing more confidence compared to their smaller counterparts, when it comes to engaging in bigger deals in 2018.
A major focus in 2018 is divestitures. Financing needs and strategy shifts are driving leaders to shed businesses. No longer are they exclusive to only cash-strapped companies looking for emergency capital though. Recent years have seen organizations adopting an approach to their business units that is portfolio-driven. Divestitures are one of the most complex transactions in comparison to other M&A transactions.
Vertical integration still sees a strong bias towards itself and major themes include industry and sector convergence. Particular attention must be paid to protecting and preserving all identified operational and cost synergies. Life sciences and healthcare, financial services, and technology are the top industries that are being predicted to experience convergence.
Technology convergence is totally changing the scenario. Earlier, only tech companies used to buy other tech companies. But now tech companies do buy non-tech companies and vice versa. This is because all companies need to be driven by technology.
Healthcare M&A will continue to move ahead throughout 2018. This is driven by an increasingly competitive marketplace, inexpensive cash, and continued pricing pressures for both products and services. Pharmaceutical industry sees high M&A activity, as companies are diversing their portfolios. They are basically attempting to lessen potential near-term gaps in revenue, resulting from loss of patent protection on key drugs.
As corporations are with more spending power and their cash levels have increased, M&A is the top intended use of these funds. Interest in global deals is going down, and the areas of geographic interest are shifting. Though businesses will continue with deal activity across borders, they are becoming more selective.Companies have now become more resilient and are able to navigate better through major global economic shifts. Capital market volatility has decreased.
You can see that the M&A outlook for 2018 is positive overall. Once you understand what drives entities to pursue deals, what is going to be critical for their success, and how new tools are taking the M&A world by storm, you will surely be able to successfully handle your next transaction.