M&A activity in the North American Construction and Engineering sector for Q4 2013 through February 1, 2014 included 86 deals announced or closed according to data provided by S&P Capital IQ. According to data published by global consulting firm Ernst and Young, 2014 could show a significant uptick in M&A for a sector that has been negatively impacted since the global recession in 2008. According to data from the US Census Bureau, privately-owned housing units authorized by building permits in December 2013 were at a seasonally adjusted annual rate of 986,000. This is 3.0% below the revised November rate of 1,017,000, but is 4.6% above the December 2012 estimate of 943,000. Privately-owned housing starts in December were at a seasonally adjusted annual rate of 999,000. This is 9.8% below the revised November estimate of 1,107,000, but is 1.6% above the December 2012 rate of 983,000. The numbers marked the highest level of housing starts since February 2008, with permits also near a five-year high, indicating an increase in activity will likely continue through 2014.
At year’s end, M&A professionals were surveyed by KPMG in the hopes of spotting trends that might hint at future results. The 2014 M&A Outlook report suggests an increasingly robust M&A market with the center of global activity likely in our own backyard. This year may just be the year of the M&A breakout.
KPMG’s survey is based on the responses of 1000 corporate M&A, private equity and investment banking professionals who were asked specific questions about the likelihood of entering into a deal in 2014 and how and why that might happen. 63 percent of respondents affirmed that they would be buyers in 2014. Deal motivators include deploying cash, unique target opportunities and available credit at favorable terms, all to foster growth. An expanding customer base and geographic reach as well as providing new, improved products were also part of the equation. Read more »
M&A activity in the North American Energy sector for Q4 2013 through Jan. 28, 2014 included 325 deals announced or closed according to data provided by S&P Capital IQ. There is reason to be optimistic regarding M&A in the sector for 2014 and beyond. While the North American market continues to pose challenges, there is always an appetite in consolidating profit-generating entities. Further, despite a modest recovery in the price of natural gas and the retirement of some coal-fired plants, the dynamics of wholesale supply and demand continue to lead lower forward power price curves. Private equity continues to have strong interest in the space driven by utilities and ancillary services relating to oil and gas.
M&A activity in the North American Aerospace and Defense sector for Q4 2013 through Jan. 23, 2014 included 48 deals announced or closed according to data provided by S&P Capital IQ. In recent years, M&A activity in the Aerospace and Defense sector has lagged amid uncertain government spending, which has kept sellers on the sidelines and buyers on the lookout for alternative places to invest their money. However, according to a report from the global consulting firm Deloitte, shrinking defense budgets and an uptick in commercial aircraft orders has led to consolidation in supply chains for both sectors, which should continue through 2014.
Don’t Get Caught in the Coming Interest Rate Updraft
You’ve heard the experts telling us. Interest rates are going to rise this year. The yield on the Ten Year Treasury (TYT) is already up 100 basis points since early last year. At just under 2.75% the TYT could hit 4.0% or more by year end. Why? The Federal Reserve Bank will soon decrease their economic manipulation known as Quantitative Easing by reducing the amount of mortgage backed bonds they’ve been purchasing from the market (thereby artificially pumping cash into the marketplace). At the peak they were buying over $85 billion each month. Over a trillion dollars a year in printed money dumped into the market to keep interest rates down and hopefully spur economic activity. This promotes inflation which is how the Fed pays off its debt with cheaper dollars.
Whether it worked or not is open to debate. What you should be mindful of is the coming increase in the cost of business loans and consumer loans. Increasing those costs will have a dampening effect on the economy in general, and for some businesses a very specific effect. Read more »
M&A activity in the North American transportation and logistics sector in the third quarter of 2013 was active with 62 deals announced or closed in the period according to data provided by S&P Capital IQ. According to a report from international consulting firm PricewaterhouseCoopers (PwC), deal making activity in North America and Europe was somewhat tempered compared to other parts of the world due to strategic companies largely remaining idle, or on the sidelines. Moreover, the respective economic challenges in each region are impacting activity, but the near-term outlook for North America is bright due to a recent upswing in manufacturing activity.
M&A activity in the North American Information Technology, Media, and Telecom sector for Q3 2013 was up nearly 200% from last year, with 740 deals announced or closed in the period according to data provided by S&P Capital IQ. Although deal count pared 6% year-over-year, aggregate transactional values were on track to reach levels not seen since 2007. The Telecommunications sector continued to see the biggest deals with Vodafone’s $58.9 billion purchase of Verizon Wireless. Media companies paid higher values for acquisitions with an average deals size of $819.3 million compared to $139.7 million by the Technology companies.
On behalf of our clients, what we want to be able to do is understand how to present their business in the best light possible to the Private Equity Group (PEG) . What are the strengths and weaknesses of the business so that we can position it in order to have a successful outcome? Our task in representing our clients is to obtain the best valuation and best structure possible. PEGs see thousands of deals per year. What is it they are looking for because they are going to make a decision based on a one to five page summary of whether they are going to proceed or not? There is a very narrow window to get their attention. More often than not the person getting that teaser is not one of the founding or general managers of the firm who is ultimately making the decision. So the gatekeeper is basing it off of their experience up to that time, their interpretation of what the investment rules or criteria are of the business. You have to get through the gatekeeper.
Then he or she brings it to a partner or someone else who would lead the transaction and at that point they would decide wrong sector right business model or whatever. Then it’s going be presented to the rest of the team on Monday morning. Then somebody in that room may say “oh I did one of those ten years ago, I hate that industry or I hate that business model or we would never do one of those, I lost money in those, or hey a friend of mine runs one of those you should talk to him.” Maybe everybody says “I love it” and you get into the peeling back the onion on the diligence process. At each one of those steps there is decision making and as you get closer and closer to closing the risk level increases because you are getting closer to lots of money changing hands and you are getting further away from the people you were speaking to at the beginning of the process. It’s harder to go back to them. Some things you never discussed at the beginning start getting discussed at the end. So you have got all this very tense rapidly moving and often shifting landscape that you are trying to manage.
Managing the process is critical. For a discussion of some of the issues inherent to PEG review of potential investments between a Managing Partner of a PEG, Devin Matthews of Chicago Growth Partners, and a Principal of CFAW, David Sinyard, please go to: http://www.pefuncast.com/podcasts/.
Posted by David Sinyard.
Q3 M&A activity in the Chemicals/Plastics sector was relatively active with 35 deals announced or closed in the quarter according to information from S&P Capital IQ. With strong demand for plastic and chemically derived products in the consumer goods, automotive, industrial manufacturing and construction sectors, a recovering economy should only increase M&A activity going forward.
We all had high expectations for 2013. A favorable lending environment, deep piles of private equity “dry powder” sitting on the side lines ready to invest and tax issues seemingly put to rest set up an environment ripe for M&A activity. However, the first half of 2013 was quiet… eerily so, with few completed transactions. Business sellers raced to complete transactions at the end of 2012 in advance of tax increases for the coming year and few deals flowed into early 2013. The second half of the year picked up steam and it looked as if we’d be able to make up some ground, but the momentum was not sustainable. With no urgent incentives to finish transactions by year’s end, deals didn’t get done and 2013 just never lived up to expectations.
Interestingly, the same factors that created a sluggish 2011 crept back in 2013. Uncertainty in tax policy, healthcare reform and “fiscal stability” or lack-there-of became areas of concern for business owners and investors alike. M&A activity hit an 8 year low, dropping below dot com levels. Investors were reluctant to invest in the unfamiliar, so turned to less risky ad-on investments to current portfolio holdings. Smaller size deals became highly sought after and values were driven higher. The middle market was the place to be in 2013. Read more »