As the New Year begins, expectations in the M&A are high. There was an overall decline in activity in 2016 as compared to 2015. To most of the deal makers, it is due to the uncertainties that come with political environment. However, as the year unveils, stabilization in the new administration will dictate the market, with predictions of favors in the Mergers and Acquisition markets.

2017 Expectations in the Merger market.

2016 showed a drop in activity by a 25% decline in activity and reduction in deals. According to M. Bolsinger from Dechert; there are a lot of expectations from the new administration; running from changes in tax policies, interest rates, to other macroeconomic drivers. It is until the changes stabilize that great deals in M&A will crop. Bolsinger is also optimistic on the available opportunities in the financial sector based on the president’s elect promise to replace Dodd-Frank. From his perspective, there is uncertainty of performance in the environment and healthcare sectors.

It is also expected that M&A importance will be of significance in 2017. The US$1.7tn is the amount of money reported to be lying idle in the financial sectors, which is expected to be put in the M&A market for a significant whopping change. Also, there is the need to invest in the organic growth around the world. According to J, Packee, Baird, most investors concentrate on the inorganic investment. It is reported that dry powder stood at US$800bn in Q3 which would have been invested in the sector.

Stock Market

The first quarter of 2017 is expected to show an increasing trend in the deal activity due to the sudden drop of uncertainties from the pre-election period. According to Eurazzo, who works for an international investment company in Paris, the drop in uncertainties can be seen from the trends in the US stock market.

In addition, higher expectations in the M&A deal sector is linked to the emphasis on quality of deals in 2016 which slowed down activities. It is however expected to be different in the first and second quarters of 2017, since there is more confidence in the inventory deal as high quality deals venture the market.

Expectations in the private equity activity in 2017

It is reported that private equity activity in 2016 in North America remained strong, which is in contrast with the drop in the corporate M&A. In the first, second and third quarters of 2016, there were 781 private equity deals valued at US1bn, which is just five fewer from 786 deals in 2015. The technology, industrial and chemicals, and the business services sectors are the top three sectors that largely contributed to the private equity deals in 2016.

According to West Monroe, the last seven years have recorded such a high competition in the private equity deals. This is due to the emphasis in quality deals, speed and valuation, and availability of active strategic buyers. Also, the financial sponsors have made the private equity business easy and convenient. This is because, private equity firms assemble portfolio companies and then roll up add-ons to those companies.

However, according to Bolsinger, the high competition is due to: fewer and fewer large-cap deals; and availability of very acquisitive strategies that sit on a lot of cash while still fostering big threats to the private equities.

Eurazzo sees the long term deals between a business owner and a private equity firm much more sufficient than the short term deals. This is due to the fact that businesses take long to be more productive.

The driving force of the increase in the inbound deal value by 21% in mid-market M&A.

The inbound deal value went up by 21% to US$22.9bn in Q1-Q3 in 2016 especially from the Asia based acquirers. The Asian countries engage in M&A for various reasons such as acquiring better technology or to expand their market share.

The success of great deals in M&A is the buying of beneficial brands and investing back to the countries’ businesses to enhance them. Also, a strict state control helps in improving M&A deals as evident from the China State Council.

The challenges facing the M&A deals.

Cultural differences makes it difficult for some investors to invest and succeed in foreign areas. This is due to political and cultural differences, as well as communication barriers. However, buying a well-established business can conquer the challenges.

The expansion of private debt for M&A activity.

In 2016, the closed end private debt fund had more than US$131bn, which is the highest amount recorded ever. The increased debts according to Monroe is due to the low interest rates. Also, investors have turned up in large numbers to seek for direct lending, which proves to be more convenient rather than the traditional way of banking market.

Source: Firmex.com

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This entry was posted on Wednesday, January 25th, 2017 at 4:16 pm and is filed under Forex, Investing, Stock Market. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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