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North America experienced a downfall in deal activities because of the high political volatility. However, in Q4, the transaction numbers started to rebound and the new year started with some uncertainty in the M&A atmosphere with the new US government yet to come in power. Where will the chances be for savvy investors in the coming months? To answer this few experts weigh in.
Merger market – The North American mid-market experienced a fall in activity through 2016 Q3, reducing by twenty-five percent by volume, year after year (1280 deals in the present year in contrast with 1699 deals 1 year ago) and nineteen percent in Value (USD $103 billion compared to USD $126 billion). Based on the current situation, what will be the scenario in 2017?
According to M. Bolsinger from West Monroe, the reason of the slowdown in activity which we all are experiencing is because of the uncertainty of in the political scenario, especially from the election. With the presidential election, few bigger questions like the new government’s policies on interest rates, tax etc., arise. So, it was normal for the public to be cautious. Moving forward to the next year, there are still some uncertainties regarding the Trump Government’s policies and until those policies come in action, people will be somewhat cautious. The citizens of America have a lot of expectation from Mr. Trump and expect deregulation of the financial sector since it could create some opportunities for the benefit of the people. One such area is insurance and banking which is on the front line as the President promised to replace and repeal Dodd-Frank. The public also thinks that a revision of environmental regulations can help natural-resource based industries and companies.
M. Goldman from TM capital states that they are very fortunate since at TM they are going off some record years and the pattern was continuing in the year 2016. Coming to 2017, they did not know what to expect as they have already seen the cycles before in this industry. But still for them, the year kept on humming at the same speed. The level of transaction activity and pitch activity of 2017 is as strong as it was last year. There was a time when the Presidential election was pending which froze the people a bit since they wanted to comprehend what the new rules and regulations of the road is going to be. Earlier this year, there were few problems regarding the average deal quality since we all have seem some high quality deals entering the market for the next year.
Mergermarket: North America’s private equity activity was strong last year compared to the fall in M&A in the current year. Last year in North America, there were seven hundred and eighty-one PE deals which were valued at USD $1 billion or less in Q1-Q3 which is comparatively less than in 2015. With the rise in competition for deals among the buyout companies, what will be the scenario of PE activity in 2017? Will there be sufficient number of attractive targets for the rising number of PE companies to buy?
M. Sondag from West Monroe states that in the last 6 to 7 year, the competition for deals was never this high. The number of transactions where the sellers are taking 2 to 3 buyers to the endpoint is the at a rise. Also, most of their customers are trying to pre-empt the process trying to gain valuation and speed. Private equity firms have enough dry force to deploy, and even the strategic buyers are active. Taking lower deal quality into consideration only intensifies the competition.
M. Bolsinger from Dechert says that the level on competition have increased because of several reasons. Firstly, there are lesser and lesser large capital deals being done. Fewer deal values of USD 1 billion or more can be seen which means that larger funds are going down into the upper middle market. We are also experiencing the need of new investors who may have put money in PE either through a fund-of-funds or as a co-investor but who are now taking their own path whether its sovereign wealth funds or family offices. And provided they all are playing in somewhat the same market, there will be increase in competition.
Source: Firmex Report