Key M&A Insights Looking Into 2013: Record Number of Deals, Fragile Markets

The end of 2012 saw a surge in deal flow that left M&A markets at levels equaling 1998/1999 and 2005/2006 market peaks – approximately 11,000 M&A deals involving US companies.

2012, however, was different from these previous highs:  1999 was fueled by a tech stock bubble, and 2006 by structured debt markets.  Our sense is that 2012 was driven by buyers with excess cash and needs for external growth, and sellers with macroeconomic, concentrated wealth and risk management concerns.

Source:  Dealogic LLC.  M&A involving US companies, 50%+ final stakes, ex-Finance/Real Estate

Within the 2012 aggregate numbers, several long-term averages held true for M&A involving US-based companies:
  • The large majority of deals were small and private – 75% of deals had no disclosed value
  • Divestitures were 40% of the market – 1/3 of previous deals were re-sold within 5 years
  • Cross-border acquirors were 20% of deals – Europe was 50% of these, mostly <$100MM
  • Private equity made 1,100 entries and 400 exits, with deal size trending towards $100-500MM

Looking into 2013 we believe activity for the full twelve months will continue at current levels, albeit with challenges and turbulence.  Acquiror balance sheets are at their strongest in many years, internal growth is hard to come by, and cash assets are earning negative real returns.  The downside risks for M&A are also clear:  The US economic recovery is weak, even with aggressive government stimulus, and global political/financial problems are not going away.

Deals that get done in 2013 will have compelling straight-forward rationales.  This suggests for acquirors these deals will also be more successful than long term averages.