Next year will be a strong one for strategic acquirers. A KPMG survey reports 82% of executives expect to execute at least one acquisition in 2015, up from 63% in 2014. This is consistent with what Capstone has been seeing in the marketplace. Our survey of midmarket executives earlier in 2014 revealed that, 60% of midmarket executives reported M&A activity in 2014 and 44% already plan to execute an acquisition in 2015.
Large cash reserves, low interest rates and consumer confidence are key drivers behind M&A activity. U.S. corporations held a record $1.65 trillion in cash in mid-2014 and have finally begun spending their war chest on stock buybacks and M&A. The study anticipates large deals valued at $250 million, $500 million and $1 billion.
“Buyers are paying a premium for targets that will allow them to realize long-term strategic goals and gain an advantage over the competition,” says Dan Tiemann of KPMG.
This is good news. For too long after the recession, corporate America has been afraid to take risks. Many companies have remained on the sidelines and others have focused on acquisitions driven by cost-cutting to increase profits rather than on a sustainable strategy.
We have long encouraged clients to pursue targets that most closely support their long-term growth, including not-for-sale acquisitions. This may mean paying a little bit more upfront to execute an acquisition that will grow your business exponentially. Strategic acquirers do not qualify “good deals” on price alone. They understand the cheapest or the easiest deals do not necessarily meet their needs. Instead, they are looking for the company that will best serve their growth objectives.
Strategic acquisitions allow you to accelerate your growth and open up many opportunities that are unavailable through organic means alone. I am encouraged that more companies are thinking about long-term strategic growth—and I hope you are, too!