US interest rate increase not seen as 2016 M&A concern by many
M&A is expected to stay hot in the new year, according to a December Deloitte poll showing 47.6 percent of respondents expect an increase in deal flow involving US companies in 2016. In particular, despite record levels of US mega-deals (valued at $10 billion or more) in 2015, respondents remain bullish that 2016 levels will increase or remain elevated similar to 2015 levels (46.4 percent). Just 13.2 percent of respondents say a US interest rate increase will pose a major challenge to 2016 M&A.
"Going into 2015, many of us in M&A anticipated a favorable mega-deal market, but what we are evidencing has exceeded even these expectations. US M&A activity in 2015 has eclipsed peak 2007 levels and the number of mega-deals has tripled to close to 50," said Russell Thomson, Managing Partner of Deloitte's US Merger & Acquisitions Services practice. "Combining many of the fundamental drivers of 2015 activity that remain favorable in the US with the current divergence in economic growth and monetary policies around the world, we expect 2016 to provide further opportunities for M&A."
Thomson continued, "While it remains to be seen what the mid-December US interest rate increase and potential for ongoing increases will do to M&A activity in 2016, I don't expect the initial impact to be a large one. What I am watching more closely is the impact of the strong US dollar and relative valuation differences between significant global markets which may further stimulate cross-border deal opportunities for some geographies."
Other poll findings show:
Respondents are torn on what US company IPO volumes to expect in 2016 compared to 2015, as 36.9 percent expect an increase and 21.1 percent expect a decrease.
The biggest M&A challenges for 2016 include over-inflated valuations (20.7 percent), U.S. political uncertainty (16.8 percent) and continuing economic softness in the Eurozone and China (16.5 percent).
By a wide margin, North America (48.8 percent) will be the top M&A market for respondents' organizations, over China (6.8 percent), Western Europe (5.9 percent), Latin America (3.5 percent), and other emerging markets (4.7 percent).