Despite a slowdown in US merger and acquisition activity since the fourth quarter of 2012, high levels of available financing and cash on corporate balance sheets should lead to “sustained deal activity through the remainder of 2013”, according to a PwC study.
After reaching $317 billion in Q4 2012, US M&A activity dropped to $291 billion during the first quarter of 2013 and continued falling to $237 million in the second quarter.
However, conditions exist for a healthy volume of M&A activity through the end of 2013, according to John Potter, partner in PwC’s Deal’s practice.
“All the fundamentals are there,” he said. “You have capital, you have available debt [and] you have generally greater economic stability.”
Private equity transactions, which rose from $46 billion of combined value during the first half of 2012 to $103 billion in the first half of 2013, are also poised for a steady level of activity through the end of the year, according to PwC.
“When I look at private equity activity, there’s a lot of continued strong divestitures on the corporate side, which is ripe for private equity investment,” Potter said.
Sectors that are “ripe for deals” according to the study, include health industries, where “consolidation has increased more than 50 percent since 2009 and is expected to continue through 2014”, and financial services, where “deal activity in 2013 is expected to be driven by ongoing divestitures of non-core assets by major European institutions as well as restructuring activity as US financial services comply with increased regulations”. The retail and consumer sectors also have witnessed a “recent pick up in businesses starting to come to market for sale and relatively positive trends in consumer sentiment and retail sales, the study said.
One difference between 2013 and 2012 that may have an impact on deal activity is that entrepreneurs were incentivised to sell businesses before the end of 2012 due to a perception of rising tax rates in the US.
“They’re not going to be motivated by taxes as they were last year, but they’re still motivated,” Potter said. “Valuations are strong and the capital is there.”