M&A rise set to continue

December 2014  |  FEATURE  |  MERGERS & ACQUISITIONS

Financier Worldwide Magazine

Dealmaking and M&A activity is likely to continue to accelerate throughout the first quarter of 2015, according to a new report from Intralinks Holdings Ltd.

The report, which is derived from a survey of 700 global M&A professionals conducted in Q3 2014, shows that dealmakers remain positive about the potential for dealmaking in the early stages of 2015. Around 60 percent are confident about the prospects of the deal environment for the coming year. The energy and power and technology sectors are likely to be the two most active sectors in the first quarter of 2015, according to those surveyed.

Although the ‘Q1 2015 Deal Flow Predictor (DFP)’ report has suggested that the M&A market will actually see a 5 percent quarter on quarter decrease in activity, that would still be an 8 percent year on year increase in early stage global M&A for the first quarter of the year. The majority of deal activity in Q1 2015 will be focused in North America and the Asia Pacific (APAC) region. “Deal volumes across Asia Pacific have been particularly impressive, with the largest increases in activity seen across the manufacturing/industrials, technology and consumer sectors,” said Matt Porzio, vice president of M&A strategy and product marketing at Intralinks. “The combination of increasing competition among buyers along with corporates actively looking for new opportunities is driving increased activity. Sellers are motivated and buyers have access to financing, enabling them to grow. Global deal volume continues to go up and we expect to see a good number of high profile deal announcements through early 2015,” he added.

Global announced M&A volumes for the full year of 2014 are expected to increase between 7 and 11 percent compared to 2013. This bump would represent the first annual increase in the number of announced transactions since 2010.

North America

North American early-stage M&A activity has been rising in recent years. Dealmaking in the region jumped 19 percent between Q3 2011 and Q2 2013. This activity was underpinned by the strengthening US economy, low interest rates and increased pressure on corporate buyers to generate growth. The IMF and a number of other analysts have continued to revise predictions for US growth throughout 2014, and the US economy is expected to experience one of the highest growth rates among all advanced economies. Even an eventual rise in interest rates in the region is unlikely to have a hugely detrimental impact on dealmaking in North America. If this happens, it will lead to a ‘new normal’ of long term rates at well below the established historical average, according to the report. As such, funding for deals will remain available and pressure will be exerted on corporations to generate growth wherever possible.

The burgeoning US shale gas market, which has created a revolution in the country’s energy sector over the last few years, has played a commanding role in the country’s strengthening economic outlook. Away from shale gas, other unconventional energy sources and increased extraction from existing conventional sources such as oil have also has a strong bearing on the US economy. The fall in energy costs for the country’s industries, and increased competitiveness within those industries, along with a drop in US reliance on potentially volatile sources of imported energy, have all combined to contribute to the improving North American outlook.

APAC

The APAC region is expected to see strong levels of growth in Q1 2015, according to the Intralinks report. Early stage M&A activity levels in the APAC area have increased by 7 percent over the four quarters studied. This represents a 7 percent year on year increase and an 18 percent quarter on quarter increase. The most active countries within the APAC region were South Korea, Singapore, India and Japan. Although the increase in quarter on quarter activity was seen across almost the entire APAC region, Australia and Hong Kong were exceptions to the rule.

Europe

The US and APAC regions are expected to lead the way in 2015. However, optimism in Europe is growing, regardless of the region’s stagnating economic outlook. According to the report, in Q3 2014 Europe demonstrated the largest increase in early stage M&A activity, growth which is indicative of the region’s attractiveness to investors. The viability of a number of European firms as potential M&A targets, and the region’s wider recovery potential, have also helped to boost optimism.

The outlook for M&A activity in 2015 is optimistic. The report predicts a 10 percent increase in year on year M&A activity in Europe during Q1 2015. This Q1 increase should create sustained momentum, which will be carried forward through 2015.

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Richard Summerfield