Why Merger Activity Was Slowing In The US (and why it will rise in 2018)
Bizjournals argues that M&A in the US was slowing because … the price was just not right, and no tax reform or stock market’s gains will make the blindest bit of difference to the slowdown.
They quote Pitchbook.com stats to support a claim that in 2017 deals fell by 15% over 2016 though 2017 was still one of the best years on record and average deal size rose 2.5%. But number of deals and total value fell because of red hot stock prices that have sent company valuations through the roof. And though the authors see tax reform generating some capital returning to the US, they do not see that playing into company acquisitions. They see it, instead, resulting in payouts to shareholders and in stock buybacks.
But they forecast better times ahead for 2018 with companies sitting on large cash piles that they need to invest. Business Insider seems to agree with them and predict an upswing resulting from clarity around the GOP tax plan. They claim that the tail end of 2017 saw an uptick that’s likely to pick up steam over 2018. They credit Goldman Sachs with their prediction of a 6% rise to $355 billion in 2018 supported by views from Wells Fargo and Robert W. Baird.
The dealmaking was particularly concentrated among real estate developers, drug firms and energy concerns. The result: M&A in 2017 was somewhat polarized, geographically, with the bulk of deals closing where those sectors are strongest — in the nation’s Southwest and Northeast….
Analysts have linked some of the decline to political unrest abroad and regulatory uncertainties surrounding the Trump Administration. However, a bigger influence on the dealmaking downturn, they say, is the fact that a red-hot stock market has sent company valuations skyward.
The article is available here.
PwC’s analysis of 2017’s private equity deals is that the market was flat and was marked by “declining deal value, with growth in the middle market offset by fewer mega deals”.
We expect a robust deal making environment in 2018, buoyed by demand and a number of disruptive factors which we believe will drive opportunities. Tax reform could be a catalyst for increased deal activity, driven by the use of repatriated foreign cash or other factors. Activist shareholders in the US, and increasingly in Europe, appear likely to drive an uptick in divestitures as conglomerates are pushed to break up or shed non core assets.
TheMiddleMarket believes tax reform will make a big positive difference to the number of deals and value of deals in 2018.
There is tremendous sentiment that M&A activity in the middle market will surpass 2017 levels this year. Both the size of deals and the quantity of those deals will likely be much higher as both sellers and acquirers look to take advantage of the act’s pro-growth provisions. It is important to realize all of the benefits and potential hurdles the act contains so that all parties will benefit from their transactions.