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M&A Activity is Accelerating. What's Driving it?

Expect big things in mergers and acquisitions through 2018. This is the word from Deloitte, which surveyed more than 1,000 executives to get their sense on these types of corporate activities. In fact, according to the report, nearly 70 percent of executives of U.S.-based companies expect deal flow will top 2017’s numbers.

The corporate bigwigs aren’t the only ones sensing this trend. More than three-quarters of the surveyed leadership at U.S.-based private equity firms believe deals will increase. On top of that, nearly all of them (97 percent) think deal size will either increase or stay the same. So what’s driving this activity?

According to the consulting firm, there are a number of factors. They range from policy to technology to financial implications to shifting strategies. Combined, these mean M&A spending could grow to $355 billion in 2018 according to Goldman Sachs. This represents a 6 percent increase over 2017 levels.

Here are some of the key factors potentially driving the M&A market to new heights:

Tax reform: With the signing of the Tax Cuts and Jobs Act in late 2017, there’s a lot more financial clarity for these corporate entities. David Kostin, Goldman’s head of U.S. equity strategy, wrote in a research note, “Robust confidence and reduced policy uncertainty should increase the fundamental incentive for corporate acquisitions.” His sentiment was echoed by Skadden Arps, one of America’s leading corporate law firms. In a website post from mid-January, they wrote, “We expect that the reduction of the U.S. corporate tax rate to 21 percent will make the United States a more attractive jurisdiction for inbound M&A activity.” This is not to mention the pent up demand as firms were waiting to see what the long-promised tax reform would look like.

M&A technology tools: Like most industries, investment banking is seeing the benefit of technology in increasing business. According to the Deloitte study, 63 percent of respondents said they are using “non-spreadsheet-based M&A technology tools” during their deals. The study notes that these technologies speed up processes, make deals run more smoothly and keep costs down. Such tools could include things like virtual data rooms, which have become work hubs for highly-sensitive corporate activities. They enable people to collaborate and conduct critical research and analysis in a secure, virtual environment. Some, like SmartRoom, offer cutting edge services like APIs for integration with leading software packages.

Delivering results: Does a deal deliver the return on investment? That’s the key question that typically won’t be answered for months, if not years. According to the Deloitte survey, sentiment is improving as to whether a deal has delivered. “Among corporate respondents,” they write, “12 percent said that more than half their deals did not meet expectations, down from 40 percent back in the spring 2016 survey.” On the private equity side, those numbers dipped from 54 percent in 2016 to just 6 percent in 2017. Potentially a sign of good things to come.

Digital strategies: With technology and the internet now a part of our everyday lives, it should come as no surprise that these are the top types of projected acquisitions for 2018. According to the Deloitte survey, acquiring technologies or digital strategies accounted for nearly one-third of all deals being pursued.

It’s not just the M&A side of corporate transactions that are looking to have a busy 2018. Divestitures are likely to see a lot of activity as, according to Deloitte, 70 percent of respondents expect to spin off some portion of their business in this calendar year. In fact, there’s already been some high profile news in this world as Meredith Corporation has reportedly hired advisors to help them sell off some of their big-named media properties including Time, Fortune and Sports Illustrated. At Community Health Systems, the hospital chain is looking to sell off some of their assets to raise more than $1.3 billion.

Whether it’s a merger, acquisition or divestiture, it’s critical to have the right technology in place when managing a significant corporate initiative. The virtual data room, like that from SmartRoom, creates an end-to-end deal management platform. Not only that, but with bank-grade security, real-time content management and workflow resources, it delivers valued time and cost savings.

 

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