By Jason Bramwell, Staff Writer
Sixty-three percent of the more than 1,000 merger and acquisition (M&A) professionals, investors, and advisors surveyed recently by Big Four firm KPMG LLP believe their US companies or clients will initiate at least one acquisition next year.
In addition, 36 percent of respondents anticipate their businesses or clients will complete a divestiture in 2014.
KPMG's 2014 M&A Outlook Survey asked professionals in US corporations, private equity firms, and investment banks their thoughts on the M&A market for the upcoming year.
"We've seen a shift in the marketplace from when companies divested noncore assets as a result of the economic downturn to today, pursuing inorganic growth", Dan Tiemann, KPMG's Transactions & Restructuring lead for the Americas, said in a written statement. "With favorable conditions in place for increased M&A activity, such as significant cash on corporate balance sheets, more confidence in the overall economy, and continued low interest rates, expanding core business functions through acquisitions is an appealing strategy for organizations."
In 2014, according to the survey, the industries expected to have the most M&A activity are technology/media/telecommunications (44 percent of respondents), health care/pharmaceuticals/life sciences (41 percent), financial services (28 percent), and energy (27 percent). Consumer markets were cited by 21 percent, and the diversified industrials sector was cited by 18 percent.
Nearly three-quarters of the 145 C-level executives polled expect their companies will make an acquisition in 2014, compared to approximately half in 2013.
The main catalysts behind deals for 2014, according to survey respondents, are large cash reserves (25 percent), followed by opportunities in emerging markets (17 percent), improved consumer confidence (16 percent), and availability of favorable credit terms (16 percent).
Among the primary reasons for making an acquisition next year, respondents cite availability of opportunities and targets (18 percent), expanding their footprint in new geographies (17 percent), expanding their customer base (17 percent), and entering new lines of business (14 percent).
At the deal outset, tax implications and planning are important considerations, reported 70 percent of respondents. Another 26 percent said they wait to consider tax issues after key deal terms and structures are decided. Thirty-nine percent of those polled said that tax considerations cause deals to become more complex and challenging to tackle, whereas 32 percent noted there is little to no resulting deal complexity from tax issues.
Joe Pari, principal-in-charge, elect, for KPMG's Washington National Tax practice, said it is important for companies to consider the tax issues and implications of a possible deal at the very outset.
"Tax is pervasive. It can impact the purchase price, it can impact the structure of the transaction, it can impact what type of consideration is paid", he said in a video included in the survey results.
M&A professionals surveyed indicate there will be very few megadeals in 2014, with middle-market deals dominating next year's activity. "Seventy-seven percent of respondents expect their respective deal activity will be valued under $250 million, followed by 12 percent who anticipate their acquisitions will be valued between $250 million and $499 million, and 5 percent between $500 million and $999 million.
According to the survey, the top three factors for deal success are a well-executed integration plan (38 percent), achieving an appropriate valuation/deal price (29 percent), and effective due diligence (20 percent).
In addition, the top three integration issues are cultural- and human resources-related (30 percent), followed by products and services integration (20 percent), then accounting and finance transformation (12 percent).
About the survey:
In collaboration with the research practice unit of SourceMedia, the publisher of Mergers & Acquisitions magazine, KPMG surveyed 1,001 M&A professionals in September 2013. The population was comprised of investors (70 percent) and advisors (30 percent) from the following industries: diversified industrials (18 percent), financial services (16 percent), technology/media/telecommunications (15 percent), consumer markets (12 percent), health care/pharmaceuticals/life sciences (11 percent), and energy (10 percent).