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2013 to bring M&A growth, says PwC

The outlook for M&A in 2013 is good, according to the latest US M&A Outlook report published by PwC.

An increase in M&A deals in the final months of 2012 indicate that growth in M&A could take place in 2013, thanks to strong balance sheets and growing confidence, claimed the report. Although there was a slight drop in M&A deals in the year to November - with 7,585 deals with a total value of $705 billion taking place - October 2012 was the most active in terms of mergers and acquisitions since August 2011, with 754 deals worth $96 billion in total.

PwC’s report stated that this increase in M&A deals, which could overspill into early 2013, is due to a number of factors. Total cash held by US S&P 500 businesses stands at a steady $1.1 trillion, which indicates healthy balance sheets. Some of the firms known to have large cash reserves include Apple, Cisco and Microsoft, which have all been involved in plenty in M&A activity in the past.

Another factor driving the increase in M&A is the availability of funding and capital, with private equity playing a significant role in the current M&A uptick. The growing number of divestitures is another factor driving M&A activity in the US. PwC’s US divestiture leader, Ron Chopoorian, stated that a series of elements need to come together for divestiture deals to work. He said, “Successful divestitures in today’s marketplace require a sharp focus on rationale around the opportunities that an asset has to grow.

“An accurate portrayal of the long term deal value of an asset helps ensure that a buyer and a seller can meet at a reasonable price and unlock value and opportunity for the future of both companies involved in the deal.”

PwC’s US deal leader, Martyn Curragh, added that the health of the debt markets, the interest from private equity from both the buy and sell side, and the growing buyer confidence is all pointing toward growth in M&A next year. This does not mean that buyers are not being extremely cautious, though. PwC suggests that due diligence and thorough checking is becoming even more important to buyers.

Mr Curragh explained, “Deal makers have been very cautious and disciplined when evaluating transactions. They are placing a premium on a thorough analysis of potential risk and exposures and are seeking to ensure there is a broad functional support to successfully manage deal execution and reduce the risk of value leakage.”

With regards to the industries that PwC has its eye on as being those most likely to take part in mergers and acquisitions in 2013, technology does, of course, feature highly on the list. Oil and gas is also thought to be a likely candidate for M&A. M&A volume and value statistics are currently in line with 2011 levels and future activity is expected to be driven by the ongoing consolidation in the shale gas sector.

Health care and pharmaceuticals could also see what PwC calls a 'banner year' for M&A due to the likely introduction of the Affordable Care Act and other regulatory changes.

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