The latest survey from Grant Thornton reveals that private equity professionals are forecasting a rise in transaction volume, despite the uncertainty surrounding the upcoming U.S. presidential election.
The survey, which polled 255 M&A professionals, found that 67% of respondents anticipate increased deal volume over the next six months. Despite high interest rates, M&A professionals cited several factors contributing to stronger deal activity in the latter half of the year.
Respondents pointed to a demand for technological advancements as a driver for deals. Sixty percent identified technology, media, entertainment, and telecommunications as key sectors for M&A activity in the coming six months. Healthcare and energy followed, ranking second and third with 34% and 31% of respondents, respectively.
Private equity (PE) firms also indicated plans to participate. Many PE firms have been holding cash, waiting for better opportunities. However, some firms may soon face pressure to return capital to investors if they do not deploy funds. Additionally, firms that have held portfolio companies for extended periods are feeling the need to sell to provide returns to investors.
Although 77% of PE respondents were optimistic about the performance of their portfolio companies over the next 12 months, 54% of PE and corporate respondents admitted to holding assets for longer periods than usual.
Vic Sandhu, a managing director at Grant Thornton, noted that investors can become restless when assets are held for longer durations. “Buyers are going to find opportunities where valuations are slightly depressed in some subsectors, while others may see valuation increases,” said Mr. Sandhu. “This reflects productivity changes and growth in certain sectors.”
However, the survey also highlighted continued challenges in securing financing.
Financing Remains Uncertain
High interest rates have created turbulence in the M&A landscape. Constraints in the lending environment have led respondents to close fewer deals, increase the equity portion in financings, and explore alternative financing structures.
Among those exploring new avenues, 85% are considering preferred equity and debt structures, while 55% are turning to investments from specialized private funds.
Tom Libeg, principal at Grant Thornton, observed that bankers are spending more time developing creative financing solutions. “I’ve seen more deals where firms collaborate and explore alternative structures to close transactions,” said Mr. Libeg. “Later, they may consider different recapitalization options.”
Interestingly, M&A professionals remain divided over whether lending conditions will improve. While interest rates are expected to drop, 34% of respondents predict a more constrained lending environment over the next 12 months, while 40% expect fewer constraints.
According to Mr. Sandhu, transaction volumes will rise sharply if interest rates decline significantly. If not, M&A activity will likely see a slower, long-term recovery.
“When buyers identify premium assets, they move quickly to involve service providers and differentiate their bids by offering speed and certainty in closing,” said Kosta Kourakis, a principal at Grant Thornton. “As the market heats up and more deals arise, the ability to act swiftly will become a key differentiator.”
Caution Surrounding the Election
While many M&A professionals are confident that deal volume will rise over the next six months, 40% indicated pausing deals until after the U.S. presidential election in November.
Roughly half of respondents said the election would not impact their deal-making, while 10% reported accelerating M&A processes to close deals before the election.
According to Sandhu, buy-side and sell-side professionals in industries vulnerable to regulation and market uncertainty tend to hold off on deals until after the election. “If businesses cannot withstand economic disruptions, it makes sense to pause deals until after the election,” said Mr. Sandhu. “A clearer political landscape can lead to more informed decisions, potentially resulting in better deal outcomes.”
Respondents ranked four factors regarding how they might be affected by the election. Nearly half (49%) said the election’s impact on the overall economy would have the greatest influence on M&A activity. Twenty-five percent highlighted regulatory policy, while 21% pointed to tax policy. The impact of trade policy was ranked as less critical.
The survey was conducted in July, before Joe Biden withdrew from the presidential race, and Kamala Harris became the presumptive Democratic nominee against Republican Donald Trump.
Founded in Chicago in 1924, Grant Thornton is the U.S. member firm of Grant Thornton International, one of the world’s largest audit, tax, and advisory firms. The firm generates over $2.4 billion in revenue and operates over 50 offices with over 600 partners and 9,000 employees.
To view the full results of the Grant Thornton survey, click HERE.
© 2024 Private Equity Professional | September 17, 2024
