After A Record Year, The Scene Is Changing, But Plenty Of Drivers Remain

Introduction

2015 certainly brought forward its fair share of volatility, but the strategic need for mergers & acquisitions continued to propel activity. We witnessed a record in overall transaction value as well as sustained high volume, and although there are concerns regarding the global market and clear cautionary signs across various economies, deal-makers focused on long-term growth remain fairly acquisitive. As the U.S. economy has strengthened, cash reserves have risen, stock prices have moved higher and privately backed companies have become ready to exit. Couple this with the availability of cheap debt and we’ve had an environment with plenty of companies with the means to close transactions and the incentives to do so despite global macro uncertainties—either for reasons of adaptation or sustainability. Further, while we think the business cycle is working steadily through its later stages, mergers & acquisitions won’t necessarily slump during this period. Rather, certain pockets of the market, particularly on a sector-by-sector basis, will feel the pain more than others, and distressed opportunities that can provide ample synergies will emerge.

Mega-deals will face the biggest burden going forward as the ability to adequately fund them in a landscape that has witnessed a significant slowdown across high-yield has produced a lending environment that may not be able to accommodate those deals as they once could. The regulatory environment plays a big role in that regard, and thus we witnessed a slowdown in the total amount of value moving through that particular ramp as deals have to get restructured in order to close. With this, multiples for certain deals may come down, but expect to see deal-makers needing to put cash to work continue to look to grow via acquisitions.

Mergers & Acquisitions – Record Value, Even As Activity Softens