Despite a dismal outlook for US merger and acquisition activity in 2013, US private equity deal volume should remain stable next year, according to new research from Ernst & Young.
M&A activity through 26 November fell 10 percent year over year to an almost 10-year low, while the combined value of deals declined 26 percent, but private equity is on track to match levels seen in 2011. In the US, private equity general partners completed 810 deals through late November, just 1 percent lower than the same period last year, while deal values have risen 3 percent, to $97.3 billion.
“There is a constant stream of activity on the private equity side, and I don’t expect that to change,” Jeffrey Bunder, global private equity leader at Ernst & Young, told Private Equity International. “I feel pretty good about where we have been in 2012, given the amount of uncertainty and the fact that I think from a corporate standpoint you can come up with numerous reasons why companies shouldn’t do deals.”
There is a constant stream of activity on the private equity side, and I don’t expect that to change
Year to date private equity deal research echoes Ernst & Young’s findings, as the number of US buyouts recorded by data provider Dealogic has risen 1 percent while combined deal values have increased 6.5 percent.
Sectors poised for particularly strong levels of activity relative to other industries in 2013 include energy and technology, according to Bunder.
“These days there’s a lot more interest [in energy] and most funds are continuing to build out their sector team around energy,” he said. “Whether that’s oil and gas exploration or energy services, we’ll continue to see more deals in that space.”
Healthcare deals, however, should remain “spotty” due to uncertainty related to the implementation of new healthcare legislation in the US, Bunder said.
Other challenges facing the US market in 2013 include the potential for price inflation, driven in part by the availability of debt at low financing costs.
“That’s an enabler for sure,” Bunder said. “We’re in a situation now where multiples are up and some people would suggest some of these businesses are too highly priced.”
Despite the dip in M&A activity during the first 11 months of the year, a new study from PwC suggests there will be “an acceleration of deals taking place during the final months of 2012”. While this could lead to a “lull in activity” during the first quarter of the year, “these sound deal fundamentals are creating optimism that the balance of 2013 will be a stronger year for US mergers and acquisitions”, PwC said.