As quickly as the Omnicom-Publicis and Pfizer-AstraZenica deals went south, AT&T’s $48.5B acquisition of DirectTV jumped into the spotlight. But not every CEO is looking for that multi-billion-dollar mega-deal. More than likely, your firm is seeking a specialty acquisition to shore up or grow a specific area of your business. Here is where the opportunities and pitfalls currently lie.
Pharmaceuticals companies are both divesting and acquiring. They’re shedding businesses that aren’t core to their operations, according to Forbes (but perhaps they’re core to yours). They’re also expanding into contiguous areas such as medical devices and diagnostics, so you may want to move quickly (and quietly) if your business has any overlap with the pharma sector.
Jumbo deals are overshadowing the marketplace. Deals of $10+ billion, such as the ones mentioned above, have broken a record in 2014, standing at 19 to date for the year, according to CNNMoney. This could inflate mid-market deal prices.
It’s a seller’s market. In Michigan, for example, one writer observes that cash-rich buyers chasing high-quality deals have created a seller’s market. As a result, “Sellers are getting very aggressive in terms of what they’re expecting,” Michael DuBay, private equity practice group leader with Honigman Miller Schwartz and Cohn LLP told Crain’s Detroit Business.
Expect heavy activity in the tech sector over the next 6 months. There is a sell-off in high tech going on right now, according to Michael Newberg of CNBC. If you are looking to build out or add automation, analytical, data, cloud or other tech capabilities, you may be able to negotiate a good deal.
Foreign acquirers are on the decline. You may have less competition as you look to acquire companies since the number of foreign acquirers of mid-market companies declined in 2013 vs. 2012, according to Deloitte. Deals in the Americas only saw a 1% improvement in volume. However, value shot up 22%.
Investment capital is plentiful. If you’re looking for financing or an investor to participate in your strategic acquisition, PitchBook reports that there is nearly a half billion in available private equity funds. Also, according to Standard & Poor’s, the average debt multiple for lending increased to 4.68x EBITDA in 2013 from 3.74x EBITDA in 2012.
All of these trends point to a healthier M&A market. If you’ve been delaying your growth plans until the market is fully recovered or waiting for the perfect deal, these signs show that there is no time like the present.
A survey of 300+ CEOs conducted in early May shows declining confidence in business conditions, even as economy reopens in many parts of the country and around the world. But there could be a silver lining.