NEW YORK, June 17, 2015 /PRNewswire/ -- Coming off a historic year for mergers and acquisitions (M&A), the U.S. retains its position among the most attractive markets for investments. As such, dealmaking during first half of 2015 has reflected a buoyant U.S. M&A market which is expected to gain steam through the end of the year, according to PwC US.
"CEOs are looking at deals to strategically strengthen and protect their positions in this increasingly competitive marketplace," said Martyn Curragh, principal and PwC's U.S. Deals leader. "Corporate boards are deploying record amounts of cash to increase returns, and high stock prices are emboldening buyers and sellers. The strong U.S. economy and rising confidence signals a strong finish to 2015, making it another record year for M&A value since 2007 and the doldrums of the financial crisis."
Fifty-four percent of U.S. CEOs plan to complete an acquisition in 2015, according to PwC's 18th annual CEO Survey. This marks the U.S. among the most active dealmakers when compared to the 29 percent of CEOs globally who responded similarly. As of May 31, 2015 M&A activity in the U.S. amounted to 4,654 deals worth $875 billion, according to data compiled by Thomson Reuters and analyzed by PwC. This represents a nine percent increase in deal value when compared with the 4,902 deals worth $805 billion recorded in the same period last year.
The current strength of the U.S. dollar has provided some additional upside for acquirers looking overseas, helping to drive an increase in outbound activity. U.S. investment abroad spiked dramatically, up 80 percent to $139 billion from $77 billion. At the same time, domestic growth continues to exceed that of the European markets and broader global market, making the U.S. an attractive target for foreign investors. U.S. inbound deal value also increased 38 percent compared to the same period in 2014 ($116 billion vs. $84 billion, respectively).
According to PwC, the quest to solidify leadership positions and build on core capabilities has created a growing appetite for transformational deals which has put corporate acquirers on the offensive. Megadeals (transactions valued at greater than $10 billion) accounted for 58 percent of total deal value in the first five months. Pharmaceutical megadeals represented 17 percent of overall deal value with six deals worth $150 billion. Megadeals announced in the technology sector drove some of the largest deals in recent history. Another two additional industry-defining megadeals were announced in early June. More industry consolidation is expected to continue as companies look for opportunities to gain scale, improve efficiencies, drive technological change and extend capabilities in adjacent markets.
"More than ever, companies are seeking to extend their capabilities into adjacent or entirely different industries. Many organizations are looking for opportunities to stimulate innovation and gain access to new technologies as much as they are looking for a conduit to new customers and geographies," added Curragh. "As the boundaries across industries continue to blur, joint ventures and alliances are also becoming more prevalent." Forty-seven percent of U.S. CEOs ranked access to new or emerging technology among the top three reasons for forming a new partnership.
While the robust U.S. stock market is providing liquidity for corporate acquirers to be aggressive and submit higher bids, private equity firms are maintaining discipline and pursuing investment opportunities with attractive valuations. "Club deals and large leveraged buyouts of the pre-recession era are fewer and far between today, but private equity firms are not on the sidelines," said Andrew Cristinzio, U.S. private equity leader, PwC. "There remains healthy amounts of dry powder for private equity to invest. Expect to see more complex private equity deal structures and a greater focus on distressed industries where corporate competition is less stiff."
Private equity deals accounted for five percent of M&A value and 17 percent of volume through the first five months of 2015, or $44 billion and 798 deals. According to PwC, more oil & gas plays may be on the horizon for private equity. Meanwhile, financial sponsors, including private equity and venture capital firms, remained active participants in the U.S. IPO market. According to PwC, financial sponsors backed 56 percent of total IPO volume and 47 percent of total IPO value as of May 31. With 78 IPOs raising $13.2 billion in the first five months, 2015 U.S. IPO activity has returned to normal levels following a record breaking year in 2014.
Shareholder activism continues to create pressure for boards to reevaluate portfolios and take advantage of surging equity markets. A number of activists have advocated for the break-up of one or more business lines as a way to unlock shareholder value and generate cash that can then be allocated to higher-growth areas of the business or returned to shareholders. Divestitures represented 27 percent of deal volume and 21 percent of value (1,238 deals worth nearly $180 billion). The top five divestitures accounted for $39 billion, led largely by the media and telecommunications industries.
Of those surveyed by PwC, 36 percent of U.S. CEOs said they have entered a new industry in the past three years, while another 61 percent of CEOs think it is likely that companies will increasingly compete in new industries over the next three years. Digital disruption continues to drive M&A, divestitures and spin-offs across the technology industry and increasingly across all sectors.
PwC expects the following industries will continue to present opportunities for deal activity through the remainder of 2015:
- Technology –Within the technology industry, the proliferation of mobile computing, social networking and convergences are disrupting consumer segments, while the enterprise side is confronting disruption from cloud computing which is shifting the business model from a capital equipment purchase to a service. Consolidation trends are driving megadeals in semiconductor (including the largest technology deal in history which was announced in late May) and within telecommunications and networking equipment.
- Pharmaceuticals – The pharmaceuticals and life sciences industry continues to be a consistent and active sector, with the largest number of megadeals in the first half of 2015. With a "buy or be bought" mentality in the industry, companies are simultaneously being defensive and offensive in their M&A strategies.
- Entertainment & Media – As consumers move toward a more ubiquitous entertainment and media consumption pattern, the desire for quality and compelling content is just as important as the infrastructure and bandwidth needed to meet consumer demands. As a result, these rapidly evolving distribution and content platforms are facing significant demand and disruption, and in turn, an increased appetite for M&A activity.
- Oil & Gas – The volatility of oil & gas prices in the past six months has decreased the level of M&A activity in the sector. However, deal activity is expected to increase in the face of sustained lower oil & gas prices as balance sheets are right sized and borrowing base redeterminations take effect.
For more on the outlook for M&A activity and what's driving megadeals, join PwC's webinar on Thursday, June 18th at 4 pm ET. Register: www.meetpwc.com/MegaDeals
PwC helps corporate and financial sponsors achieve their growth initiatives and optimize deals from strategy through value capture. PwC's Deals professionals support clients on a wide range of transactions including domestic and cross-border acquisitions, alliances, divestitures and spin-offs, capital events such as IPOs and debt offerings, as well as business reorganizations. For more information, visit: www.pwc.com/us/deals
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