Some sectors, countries expect stronger M&A activity


By Sabine Vollmer and Jack Hagel

A confluence of low interest rates, record levels of corporate cash on hand and an increased willingness among sellers to negotiate is prompting US executives to predict an uptick in mergers and acquisitions this year.

Nearly 70% of the US decision-makers who responded to a recent Knowledge@Wharton/KPMG survey expected their companies to make at least one acquisition this year, up from 57% a year ago.

Most expansion-minded respondents said they were focused on expanding the geographical reach of their companies. In many cases, they’re looking into emerging markets such as China and India but also into Indonesia and Vietnam, which are part of the so-called CIVETS group of countries.

Financial services was seen as the hottest sector this year, according to the Knowledge@Wharton/KPMG survey. Forty-two percent of respondents expected to see the most M&A activity in that sector, followed by telecom and technology (32%) and health care and pharmaceuticals (22%).

Less optimistic elsewhere

A recent global PwC survey highlighted regional differences. “Despite near-term uncertainties, [US] CEOs feel global business fundamentals point to strong future growth, and their strategies are adapting to take advantage of unprecedented new opportunities in new markets,” Bob Moritz, US chairman at PwC, wrote in the US summary of the 2012 edition of the company’s annual global CEO survey, which polled 1,258 executives from 60 countries, including160 chief executives from the US. Forty percent of US CEOs in the survey reported planning to complete a cross-border merger or acquisition this year.

The volume of acquisitions has slowly increased since 2009. Global M&A activity totalled $2.6 trillion in 2011, up 7% from the year before, according to Thomson Reuters. And the economic outlook of business leaders in the US carries a lot of weight in the global M&A marketplace. After all, roughly half of last year’s completed M&A volume included US companies.

But the outlook of business executives elsewhere in the world is making the market a little harder to predict. And so there are varying views on just how many deals will get done globally in 2012 – and at what cost, given that economic uncertainty can complicate valuations.
 
“Acquisitions are more likely to be a component of strategies for CEOs based in developed markets,” the international PwC survey said. About 28% of CEOs globally plan to close a cross-border deal in 2012 – down from 34% last year, the report said.

In the Middle East, expectations for M&A activity hit a two-year low at the end of 2011, according to Deloitte, which surveyed CFOs from 19 companies in 35 countries.

Meanwhile, fewer than half of Australian CFOs expect M&A activity to pick up in 2012.

The same goes for Belgium, Austria and the Netherlands. “Many European CFOs are not taking any chances and continue to shore up their balance sheets and reduce their appetites for risk,” the Deloitte report said.
 
Sabine Vollmer (svollmer@aicpa.org) is a CGMA Magazine senior editor. Jack Hagel (jhagel@aicpa.org) is CGMA Magazine’s editorial director.

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