2014 M&A Outlook Survey

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Change ahead: A tame M&A market looks ready to loosen up

M&A activity has been relatively tame this year, but the outlook for 2014 looks solid, says a new survey by KPMG and Mergers & Acquisitions Magazine.

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An inside look at trends in M&A

We asked over 1,000 M&A professionals—in US corporations, private equity firms and investment banks—where they think the M&A market is going next year. We found that executives expect growth opportunities through acquisitions to pick up, although there will be challenges. Watch Rob Ernst, KPMG’s National Service Line Leader, Transaction Services; Marc Moyers, National Sector Leader for Private Equity; and Joe Pari, Principal-in-Charge Elect for KPMG’s Washington National Tax practice discuss the survey and other trends in M&A.

Where in the world will the M&A deals be in 2014?

Which two regions or countries do our respondents expect will have the most M&A activity? Unsurprising in today’s high-risk investment environment, North America still proves to be an appealing market, with its relative fiscal health and growth rate. Western Europe is also attractive, with the debt crisis creating many opportunities. Finally, emerging markets remain intriguing destinations for those seeking growth.

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North
America

27%

2014

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United States

56%

2014

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South
America
(excluding Brazil)

6%

2014

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Brazil

10%

2014

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Western
Europe

29%

2014

+

Eastern
Europe (not
including Russia)

5%

2014

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Middle East/
Africa

3%

2014

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Asia
(not including
China or India)

15%

2014

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India

6%

2014

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Russia

1%

2014

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Others

2%

2014

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China

29%

2014

(Note: Figures total more than 100%.)

When asked which industries would likely have the most M&A activity, here were their top choices:

Technology / Media / Telecom

Technology / Media / Telecom

44%

A constantly evolving environment results in long-term growth

Healthcare / Pharmaceuticals / Life Sciences

Healthcare / Pharmaceuticals / Life Sciences

41%

Requirements and changes from the Affordable Care Act open new opportunities

Financial Services

Financial Services

28%

The regulatory landscape is shifting the way companies do business

Energy / Oil & Gas

Energy / Oil & Gas

27%

Global demand plus new technology and energy sources mean strong M&A activity

How do you see the 2014 deal environment?

Looking forward to 2014, we asked survey participants how they view the M&A environment and nearly two-thirds (63%) said they plan to be acquirers in the year ahead. Questioned about why they expected to step-up their deal-making in 2014, many respondents cited an improved economy, less economic uncertainty and pent-up demand.

Growth Motivates Deals

When asked to be more specific about the major reasons for these M&A transactions, executives frequently cited growth concerns: to help expand their customer base or their geographic reach.

Beyond increasing revenues or cutting costs, what is the primary reason you will initiate a deal in 2014?

Opportunistic (i.e., target becomes available)

18%

Expand customer base

17%

Expand geographic reach

17%

Enter into new lines of business

14%

Introduce new products

9%

Financial buyer looking for profitable operations and/or gain on exit

8%

Deploy capital

8%

Enhance intellectual property

4%

Invest in another function in the supply chain

3%

Defend against competition

2%

When asked about the factors facilitating their deal activity, the respondents’ top answer was “Large cash reserves/commitments.” The size of the transactions they foresee, however, leans toward the middle market, overwhelmingly (77%) in the under-$250 million range, with only 4% planning deals over $1 billion.

Which factor do you think will most facilitate deal activity the most in 2014?

Large cash reserves/commitments

25%

Opportunities in emerging markets

17%

Availability of credit on favorable terms

16%

Improved consumer confidence

16%

Improving equity markets

9%

Recovery of financial services sector

9%

Improved employment numbers

5%

Other

3%

What is the key ingredient in deal success?

We asked survey participants what they consider the most important factor in a deal’s success. By far, a well-executed integration plan was the top choice, followed by correct valuation/deal price.

Well-executed integration plan

38%

Correct valuation/deal price

29%

Effective due diligence

20%

Positive economic conditions

10%

Other

3%

What are the challenges ahead?

Despite general optimism about M&A activity in 2014, respondents admitted that there were numerous challenges to be faced. On one side, there’s the Federal Reserve’s monetary policy, with its anticipated increase in interest rates, which might (or might not) put a damper on M&A activity. On the other side, there are recessionary fears, regulatory considerations and the availability/cost of debt financing. In short, they expressed caution about the unknown.

How much influence does the Federal Reserve’s monetary policy have on your decision to raise or refinance capital?

Other challenges on the minds of our respondents are those more easy to control through the right due diligence efforts. Of the greatest interest to them are such critical due diligence issues as the volatility of future revenue streams (34%), the quality of a target’s earnings (19%) and assets (11%), cost synergy analysis (9%) and cultural issues (9%). Tax issues are also of significant concern, whether considered at the outset of a deal (a large majority of respondents, 70%) or after key deal terms and structures are decided (26%).

For more insights on the M&A market from our respondents, read the 2014 M&A Outlook Survey Report publication.

+ DOWNLOAD THE survey report

Join our webcast:

2014 M&A Outlook Survey Report

Host: KPMG Advisory Institute

Event Overview: KPMG thought leaders come together in an exclusive webcast highlighting the survey results which will provide a critical window into the views of leading M&A professionals, as well as an understanding of market perceptions and trends for 2014.

Speakers:

Rob Coble, partner, Transactions & Restructuring

Glenn Mincey, national tax leader, Private Equity

Joe Pari, national principal-in-charge, elect, Washington National Tax

Keats Aiken, partner, Transactions & Restructuring

+ Launch Webcast

Contact us

KPMG’s Corporate Finance, Transactions & Restructuring, and M&A Tax teams are the place to turn for a broad range of advice in your M&A transaction. We can support you with services that cover the full life cycle of a deal—and help you create the value you seek, while avoiding unnecessary surprises.

Mergers & Acquisitions Magazine is the premier destination for breaking news, in-depth commentary and analysis about the burgeoning middle market. It is published in partnership with the Association for Corporate Growth® (ACG), a global organization comprised of thousands of private equity firms, corporate officials and intermediaries.

To learn more about how KPMG can assist with your specific needs, call:

Daniel Tiemann Lead, Transactions
and Restructuring
312-665-3599 dantiemann@kpmg.com
Marc Moyers National Sector Leader,
Private Equity
212-954-1952 mbmoyers@kpmg.com
Lisa Madden Lead, M&A Tax
202-533-3050 lamadden@kpmg.com
Philip Isom Lead, Corporate Finance
and Restructuring
312-665-1911 pisom@kpmg.com

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