Predicting the future is always hazardous. This is especially true in the merger and acquisitions industry. And while there are any number of reliable sources for cataloging past deal activity, very few have the ability to forecast deal volumes into the future.
However, by tracking global sell-side mandates and deals reaching the due-diligence phase of a transaction (prior to public announcement), it is possible to forecast future deal levels. As a global supplier of virtual data rooms (VDRs) used to conduct due diligence, we’re exposed to a significant percentage of early-stage M&A transactions.
Independent research suggests that this insight and the data we collect (when compared to the subsequently announced deal volume reported by Thomson Reuters) provide a statistically reliable indication of future changes in the number of announced M&A transactions, approximately six months into the future.
The outlook into 2015
The latest data (compiled through the end of Q3 2014) provides a forecast for Q1 2015 deal activity, and suggests sustained momentum in M&A activity through 2015. The data shows that M&A markets have been steadily improving for some time. Global announced M&A volumes for the whole of 2014 will rise between 7 and 11 percent, compared to 2013, which was the first year we saw an annual increase in deal activity since 2010.
Rising competition among buyers (along with the fact that corporates are actively looking for new opportunities) is driving increased activity. Sellers are motivated, and buyers have access to financing, enabling them to grow inorganically. Deal volume continues to go up, and we expect to see a good number of high-profile deal announcements through early 2015. This will be especially so in sectors such as consumer, manufacturing, telecommunications, and media and entertainment.
On a regional basis, North America is especially strong. Based on our latest report (which provides predictions for Q1 2015), North American early-stage M&A activity is up 14 percent year-over-year. It is underpinned by continuing strength in the economy, low interest rates, and increased pressure on corporations to generate growth.
Europe also continues to perform strongly and consistently, with deal volume forecast to be up 8 percent YoY. Germany is the major driver of M&A activity in the region. But also in Europe, we are seeing the strongest rebound in France, Italy, and Spain, as their economic recoveries gather pace.
Latin America is still showing weakness, with Brazil (the region’s largest economy) remaining in stagnation. Asia/Pacific is showing growth across most of the region, with South Korea, Singapore, India, and Japan leading the way.
Sentiment for 2015 is positive
Each quarter, we also conduct a global sentiment survey of M&A professionals, with over 700 responding this time around. The survey reveals dealmakers remain positive, although their optimism is lower than it was during past quarters. Our latest survey also shows that dealmakers expect energy and technology to be the two most active sectors -- and that they still see deal valuation as the most difficult part of an M&A transaction.
Other survey highlights include:
- 60 percent of M&A professionals are optimistic about the deal environment in the next six months -- compared to 66 percent for the previous quarter
- 69 percent expect deal volumes to increase over the next six months, compared to 77 percent the previous quarter
- 54 percent say that recent technology deals and technology valuations indicate a tech bubble
- 62 percent believe that tax inversions (where companies buy foreign firms to lower overall corporate tax rates) are partially driving M&A activity
- 60 percent believe that international government action to retain tax revenues will make cross-border M&A transactions harder to close
No forecast is perfect, and our analysis and insight could easily be wrong, or be upended by changes in macroeconomic or political conditions -- or even sudden changes in financial markets (like the recent volatility across global equity markets). Nevertheless, dealmakers should feel at least somewhat confident that momentum in M&A markets will continue apace into 2015.Matthew Porzio, Vice President of Strategy and Product Marketing, joined Intralinks in August of 2003. He is responsible for overseeing the Strategic Transactions line of business driving the development and marketing of Intralinks' products including virtual ... View Full Bio