M&A activity has been trending upward in the last year and half to two years. There was a particular uplift in 2015 which reached the record-breaking value of $4.3 trillion worldwide. Some of that was fear-based because of what was going to happen with capital gain rates so many deals were completed in the latter half of 2015. Although activity dropped in 2016, it was still one of the most active years in the past ten years.
So far in 2017, average deal size is up and the number of deals is down for worldwide M&A activity. According to Reuters data, global M&A value reached $778 billion, increasing 12% while the number of deals decreased reached 11,441, a 9% decrease when compared to 1Q 2016. In the US deal value rose by 5% and the number of deals rose by 20%.
Middle Market Opportunity
Globally, bigger deals are back in vogue, and M&A is still being driven by strategic buyers rather than financial buyers. Large companies now have more confidence in deploying cash to execute these large transactions. However, not all of these large acquisitions will stick. There may be some “corporate indigestion” after taking such large bites and there will likely be some seeds and bones they will end up having to spit out in the form of spinoffs or divestments. That creates challenges and opportunities for the middle market companies who have the chance to fill some of those gaps.
In general from everything we are seeing right now, we expect activity will be robust for the next 12 months through the end of the 1Q 2018 , especially with the potential for tax reform related to repatriation of foreign cash. Leaders should anticipate a wave of activity from competitors, customers and suppliers and be prepared to handle changing industry dynamics. Strategic buyers should expect more competition from private equity groups as interest rates rise and PE groups become more active.
Click on the infographic for a closer look at M&A in the first quarter of 2017.