Multi-billion dollar deals across a variety of sectors dominated headlines throughout the first half of 2014, and despite virtually flat US deal volumes rising deal values could be indicative of an M&A rebound to come, according to EY Transaction Advisory Services.
“Big deals mean that confidence is returning to the boardroom. That – coupled with increasing pressure to grow the bottom line and optimize capital due to shareholder activism – has executives taking a hard look at M&A,” said Rich Jeanneret, Americas Vice Chair, Transaction Advisory Services for the EY organization. “Unlike buybacks and dividends, M&A is a strategic way for the C-suite to create value for investors. For the first time since the financial crash, we’re seeing CFOs leverage balance sheets in a way that suggests a growing war chest for M&A.”
Overall deal volume in the US for the first half of 2014 is relatively flat, down less than 1% to 5,728 deals compared to 5,752 deals in the same period of 2013. However, due to a number of high-profile deals with large price tags, deal value in the US for the first half of the year soared 63% to $904.1 billion in 2014 vs. $554.9 billion in the same period of 2013.
Additionally, whereas 2013 saw the big deals of Q1 slow down by the second quarter, upward trends in Q2 vs. Q2 2014 M&A data suggest potential for continued momentum through the balance of the year. Compared to the second quarter of 2013, volume is up 7% to 2,960 in Q2 2014 vs. 2,756 in Q2 2013. Looking back to the second quarter of 2013, value is up 154% to $579.9 billion in Q2 2014 vs. $228.8 billion during Q2 2013.
Private equity activity has been on the rise and fairly consistent across sectors due to successful post-recession fundraising ensuring there is a lot of capital to deploy. US PE acquisitions rose in the first half of the year, up 7% by volume to 435 PE acquisitions year-to-date in 2014, from 405 during the same period in 2013. Value declined 33% to$56.4 billion versus $90.0 billion in 2013. However, 2013’s value was driven by a duo of mega-deals announced in the first quarter of the year – excluding those, the announced value of PE transactions is up 46% year-to-date.
PE firms are particularly focused on achieving liquidity on many of their longtime investments, and the current environment is providing ample opportunity. Aggregate exits rose for the first half of the year to 275 in 2014 from 187 in 2013, and the value of PE exits deals more than doubled, to $117.3 billion in the first half of the year, putting the industry on track for a record year. While IPOs have been driving the trend, and increase in sales to strategic acquirers is emerging. Total exits via M&A are up 54% in 2014, to 219 such deals. PE-backed IPOs are up 24% year-to-date to 56 vs. 45 in 2013, and value is up 76%.
“Robust equity markets and strong investor sentiment has led to one of the most active global IPO markets for PE-back deals in years,” said Jeff Bunder, Private Equity Leader for the Global EY organization. “The industry is currently on pace to exceed the record PE-backed IPO activity of last year, and this momentum has emboldened others to join the queue, with more than 100 companies in the PE IPO pipeline. As M&A continues heating up, we expect to see more assets come to market and more corporates sell pieces of their businesses over the next 12-18 months which will create more buyout opportunities for PE firms.”
Strong exit activity and distributions to LPs is fueling significant reinvestment in the asset class. After several years of successive declines, PE dry powder is once again on the rise. Americas funds are currently sitting on $243.4 billion of dry powder.
“We’re experiencing a good environment for dealmaking: balance sheets are strong, debt markets are easily accessible and equity markets are showing resilience. Additionally, companies’ stock prices are being rewarded when they do M&A, which is a positive sign of things to come,” concluded Mr. Jeanneret.
2014 PEPD • Private Equity’s Leading News Magazine • 7-10-14