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Tech, financial services M&A deals expected to increase

March 6th, 2013

KPMGThe technology, financial services and healthcare sectors, among others, expect an increase in their companies’ or clients’ deal activity in 2013 compared to 2012. according to a survey conducted by KPMG LLP, the U.S. audit, tax and advisory firm.

Smaller, mid-market deals are driving the trend because they’re simpler to execute, but other dynamics contribute. Many firms have plenty of cash on their balance sheets and favorable credit terms are available.

Of the more than 400 survey respondents, 60 percent said that they would do more deals this year than last year.

The simpler financing terms associated with smaller deals, as compared to both large transactions and the megadeals, will drive middle-market M&A activity in the balance of 2013, according to 24 percent of the poll population.

Smaller, mid-market deals driving activity

However, 49 percent of respondents felt that collectively, simpler financing terms, fewer risks and integration challenges, as well as the less complexity of due diligence that’s needed for deals valued under $250 million, will serve as the catalyst for a deal market dominated by middle-market activity in 2013.

In fact, 22 percent of survey respondents indicated that in 2013 thus far, the deal market is already experiencing a high volume of middle-market activity; they also acknowledged favorable credit terms (11 percent) and elevated levels of cash on corporate balance sheets (eight percent) as driving the recent deals in the marketplace.

Corporate buyers have the advantage in the M&A space over private equity buyers (six percent) halfway through the first quarter of 2013.

Underlying fundamentals improving

“The underlying fundamentals in the deal market are improving, with the combination of a stabilizing U.S. economy, favorable credit terms, open debt markets, and high cash balances paving the way for an increase in M&A volume this year,” said Dan Tiemann , Americas lead for KPMG’s Transactions & Restructuring practice.

“As a result, companies may be highly motivated to execute transactions that drive their growth agendas, including deals that allow for business transformation and optimize new operating models.”

Effect of new regulations

When asked what effects new regulations might have on their ability to do deals in 2013, 21 percent of the poll population stated that they will cause integration challenges during the M&A process and in post-deal phases for their companies and clients.

Eighteen percent cited that new regulations have temporarily delayed their ability to do deals, followed by seven percent who have delayed M&A activity indefinitely; however, another seven percent cited they will actively pursue deals because of new regulation.

The breakdown of respondents includes M&A professionals in the following sectors: technology (17 percent); financial services (17 percent); healthcare (14 percent); diversified industrials (nine percent); energy (eight percent); and consumer markets (seven percent).

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