Midmarket M&A Analysis: Active Sectors

This is the third part in a series addressing current and expected viewpoints on M&A from across a number of professionally relevant sources. Read parts one and two of our Midmarket M&A Analysis. 

Industries that showed strong growth in early-stage activity in Q3 2013 included the consumer, life sciences, and telecommunications, media and entertainment (TME) sectors.  Additionally there has been increased activity in the financial services sector.  For Q3 2013 the number of financial services deals reaching due diligence phase was 29% up Q3 vs. Q2 and early stage activity in TME was found to be up 69% up year on year.  Additionally the life sciences and consumer sectors are showing increased activity with the number of life sciences deals reaching due diligence phase 13% up Q on Q and consumer sector early-stage activity up 45% year on year. Furthermore, respondents of a Mergers & Acquisitions survey identified health care, technology, energy and manufacturing as sectors where they expect to see the most growth in for 2014. In support of these sentiments, according to a survey by KPMG, in 2014 the industries expected to have the most M&A activity are technology, media and entertainment (44% of respondents), healthcare/pharmaceuticals/life sciences (41%), financial services (28%), and energy (27 %).

The most attention-grabbing sector for the US has been technology, media and entertainment (TME), alongside a number of megadeals across a range of other sectors. In Q3 2013, announced deals in the TME sector grew year-on-year by 50% in volume and 26 times in value to 25 deals worth US$129.5bn. North American TME companies have been attractive targets of consolidation activities.

The energy industry, and the changing nature of energy supply will be central to global market activity.  Commentators have observed that everything involved in and around fracking will be significant). In addition healthcare — especially as impacts of the Affordable Care Act become clear, is expected to be important through the year and that those involved in healthcare technology and information industries will be the most active.

Telecom M&A is expected to be the focus of much activity in 2014 following signs of gathering strength through 2013 with larger sized deals closing.  Telecoms, by far the most significant sector for the year, accounted for 21% of US M&A activity in 2013 – driven by the $130billion Verizon-Vodafone deal, the second largest deal on record (6).

Consumer M&A activity, particularly in retail, has also seen notably increased activity. In particular luxury retailers that were hit heavily by falling demand during the recession have had some successful rebounding. The retail sector generally is appealing to private equity dealmakers, creating a further driver of consumer M&A activity in the US, with sizeable activity in both buyouts and exits. Industry experts expect the M&A climate to generally trend upward for the US through 2014.