- Healthcare, Technology & Telecoms Expected to Lead Deal Activity in North America -
- Greater Confidence among Dealmakers in Europe and Greater China for 2014 -
- Deal Interference by Shareholder Activists Expected to Increase -
- Results Announced to Coincide with Annual Tulane Law School M&A Conference -
For the past three years, dealmakers have been increasingly bullish about deal activity, only to be disappointed by the tepid recovery in M&A. Will 2014 be the year the optimism proves correct?
According to the 7th Annual Brunswick Group M&A Survey, confidence in the global M&A landscape remains high for 2014, encouraged by greater confidence among CEOs and in the Board room, overall improving economic conditions and a buoyant stock market. With several mega-deals already announced in the first quarter of 2014, including Facebook's proposed $16 billion acquisition of WhatsApp, Comcast's proposed $45 billion acquisition of Time Warner Cable, and Actavis' proposed $25 billion acquisition of Forest Laboratories, advisors have reason to be encouraged.
Almost all North American-based advisors believe M&A volume will increase (83%) or stay the same (15%) this year. Dealmakers in Europe and Greater China are even more bullish on deal activity in their local regions than last year, with 72% and 74% of advisors polled, respectively, predicting an uptick.
The 7th Annual Brunswick Group M&A Survey polled over 160 top advisors from North America, Greater China, and Europe. Results were released ahead of the 26th Annual Tulane University Law School Corporate Law Institute, an annual gathering of the deal community that draws lawyers, bankers, Delaware judges and other market participants.
"On the back of a flat year in 2013, this year is off to a strong start, and the consensus among M&A practitioners is that deal activity is picking up," said Steven Lipin, senior partner, Brunswick Group. "The survey also revealed that dealmakers expect the use of stock as a currency to climb amid a buoyant stock market, and continued deal interference by activists."
Ripest Sectors for Consolidation
For the first time in several years, North American advisors see healthcare (73%) as the busiest sector for consolidation, up from only 14% in last year's survey of North American advisors, followed by longtime staple technology & telecoms (70%) and energy (43%). Advisors in Greater China also see technology & telecoms (67%) and healthcare (57%) as the two most popular sectors, while Europe-based respondents believe the technology & telecoms (60%) and financial services (40%) sectors are ripest for consolidation in 2014.
Domestic Deals to Drive U.S. Deal Flow
Nearly three-fourths (72%) of North American advisors expect domestic transactions among strategic buyers to make up the majority of the U.S. M&A market in 2014, similar to last year (71%). In terms of inbound activity, 58% of North American advisors believe the most inbound deals will originate in Greater China and expect more European buyers to be active in 2014 (36%, up from 23% last year), while only 3% expect buyers to be from Latin America (down from 11% last year). European advisors are anticipating an inflow of M&A investment from North America (72%, up from 61% last year), while Greater China advisors expect acquisitions by Chinese companies to be targeted toward Europe (46%) and Africa (27%).
Deal Interference from Shareholder Activists to Increase
The rise of shareholder activism is set to continue, with two-thirds of advisors or more expecting to see an increase in the level of deal interference by shareholder activists in 2014 (88% in Europe, 69% in North America and 64% in Greater China). Advisors in North America (39%) and Europe (52%) predict the most recurring demand among shareholder activists this year will be for spinoffs, sales or divestitures. Nine in ten (91%) of North American advisors believe companies will agree to put shareholder activists on their boards in order to avoid public fights.
More Deals to Use Mix of Cash and Stock
For the first time in five years, advisors in North America expect to see a decrease in the number of deals done with all cash (25%), driven by rising equity values. More than half of respondents (58%) predict that deals will use a mix of cash and stock, although there is an expected uptick in the number using all stock (17%). Almost two in three (63%) of advisors in Greater China believe they will see more deals using a mix of cash and stock, while 37% expect more deals using all cash. Advisors in Europe expect to see a decrease in the number of deals being done with all cash (38%) and growth in deals using a mix of cash and stock (58%).
Outward Expansion to Drive M&A Growth in China
Greater China-based deal advisors believe the primary drivers of M&A activity in 2014 will be the growing appetite among privately-owned Chinese companies (53%) and Chinese State Owned Enterprises (50%) for foreign expansion. Advisors believe Greater China acquirers will most likely invest in Europe (46%) or Africa (27%). Political tension in the Asia region is not expected to have a significant impact on intra-Asian deal activity in 2014, with half (46%) of Greater China advisors predicting a minor reduction in deal activity and almost as many (43%) anticipating no impact at all.
The survey was distributed to Brunswick's proprietary database of leading M&A advisors and consultants in March 2014. The results were analyzed by Brunswick Insight, the firm's specialist opinion research practice, focusing on understanding the views of opinion formers around the world.
