Midmarket M&A Analysis: 2013 to 2014

Following the credit crisis of the last few years and the resulting substantial decline in M&A activity, the subject of a revival in M&A activity has been much anticipated and discussed by industry participants and observers.

This week, we will release a series of blog posts providing a synthesis of M&A sentiment and opinion, incorporating the current and expected viewpoints being expressed across a number of professionally relevant sources. Today we’ll address the outlook for 2013 vs. 2014.

2013 to 2014

Businesses are increasingly turning to M&A to achieve long-term growth and it appears that confidence has returned to the M&A market.

Longer-term economic growth should help bolster US M&A activity and allow it to continue through the upcoming few years.  Supporting this view, the latest World Economic Outlook from the International Monetary Fund forecasts that the US economy will grow by 2.6% in 2014 and 3.4% in 2015.

When compared against S&P 500 firms middle-market businesses show strength and growth opportunities for 2014.  Revenue growth at S&P 500 firms was 2.6 % over the last calendar year whereas middle-market businesses saw revenue growth of 5.5 % over that same period.  Additionally, the NCMM predicts that the next 12 months will see 4.4% revenue growth from middle market firms, as compared to a 1% prediction for S&P 500 firms – more than double the rate of growth.

Following on from Q2 2013, through which there were 7,993 deals valued at a total of $187 billion, making an increase of 0.9% in deal volume and value, 2014 looks set for promising M&A activity.  Largely, fundamentals have remained convincingly strong from the second part of 2013 but the question remains if those conditions can continue through 2014.   Early-stage deal flow in the middle market is accelerating, and dealmakers expect the momentum to continue into 2014 following the substantial upward movement observed from fall 2013, according to polls taken by Mergers & Acquisitions in Q4 2013.

Positive sentiment is indicated in a survey by KPMG LLP, which has found M&A activity is expected to continue the trends of 2013, or grow somewhat, through 2014.  Of more than 1,000 M&A professionals, investors and advisors who participated in their survey, 63% anticipate that their U.S. companies or clients will initiate at least one acquisition in 2014 and 36% of respondents expect that their companies or clients will complete a divestiture in 2014(5). Additionally, among the 145 C-level executives surveyed, almost 75% anticipate their company will make an acquisition in 2014, compared to approximately half in 2013.

Furthermore, the Intralinks Deal Flow Indicator (DFI), an independently verified predictor of future changes in the global volume of announced M&A transactions, has indicated an increase in investor and corporate confidence.  DFI Q3 results have shown strong growth in global early-stage M&A activity, rising 18% year on year.   This indicator points to returning enthusiasm for M&A-led growth over the next six months.

Strong debt and equity markets have the potential to motivate divestitures and exits and this will aid M&A momentum in 2014.  Robert Profusek, global head of M&A at law firm Jones Day, comments: “The deal finance markets have never been better.”


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