July 27, 2016
By Brian Levy, PwC Deals Industries Leader
A detailed analysis and outlook for M&A and IPO activity across industries
Since releasing our Mid-Year Deals Outlook just one month ago, we’ve seen an uptick in disruptive geopolitical events and a spate of bellwether megadeals that have the potential to reshape industries as we know them today. Recent M&A announcements – including Verizon-Yahoo!, Unilever-Dollar Shave Club, SoftBank-ARM – point to even more M&A momentum on the horizon.
Dealmakers are revisiting their strategies in light of global economic uncertainties that are driving continued financial market volatility around the world. The upcoming U.S. presidential election, the Brexit vote and resulting policy decisions, negative interest rates in the Eurozone and Japan, a slowdown in Chinese growth, the failed coup in Turkey, and the Fed’s future decisions regarding interest rates will likely impact the future pipeline for deal activity for the remainder of 2016, so it’s important to put these events into context for companies facing unique circumstances in the industries they serve.
We’ve gathered insights from PwC leaders in each of our U.S. industry practices to provide an in-depth analysis of the unique opportunities, key drivers and challenges each sector faces as we enter the second half of 2016. #PwCDeals Day, is the first time we’re releasing all of our quarterly industry-focused Deals Insights on the same day. This has given us the opportunity to share a holistic look at deal activity happening across the U.S., as well as an outlook for what we might expect in the months ahead, on a sector-by-sector basis.
In the first half of 2016, technology, industrial products (primarily chemicals, industrial manufacturing and transportation & logistics) and health industries drove the vast majority of deal value and volume. But who will be the leaders and the laggards in the second half?
Here’s a preview of what’s to come for deal activity across industries:
Technology: The remainder of 2016 will likely be very active for technology M&A. Continued transformation, consolidation, and investment in emerging technologies are options for technology companies looking to remain relevant in a rapidly changing environment. With downward pressure on mega-round valuations and a still-sluggish IPO market, M&A exits represent one of the best options for cash-hungry technology privates. Growing participation from non-digital buyers may add to deal volumes as they focus on emerging technologies to enable their analog products and services in a digital world.
Health Industries: Healthcare deals of varying sizes and structure types continued throughout the quarter with continued investment interest by both corporate and private equity buyers. Deals will continue to drive growth agendas for life science companies. We may also see a rotation away from specialty and back to larger life science and biotech companies. Certain areas, such as orphan and inflammation drugs, and niche generics continue to see robust pricing and interest from buyers and sellers looking to add or remove key assets from their portfolios of products.
Entertainment, Media & Communications (EMC): Announced deal value was significantly higher this quarter, reaching the highest point in the last twelve months. Industry dealmakers are focused on the pursuit of quality content, complementary distribution channels and/or technology – and they are looking next door and around the globe for it.
Power & Utilities (P&U): Activity remains steady driven by large corporate deals for electric utility, renewable, and independent power producer companies. The rapidly changing makeup of U.S. generation supply continues to create opportunity and drive activity broadly in the space.
Retail & Consumer (R&C): Several consumer trends continue to influence deals in this space, including omni-channel retailing, digital consumer engagement and shifting of spending to tech products, changing food and beverage preferences and overall global economic uncertainties. Continued shareholder activism and renewed interest in private equity bode well for companies in the sector.
Oil & Gas (O&G): Stabilizing commodity prices and cautious optimism helped narrow the bid-ask spread in the upstream space, leading to higher deal volume which many had been anticipating for some time. Leveraged producers are divesting assets to raise cash for debt paydowns, while other E&P companies sell off non-core assets to raise proceeds to fund investment programs.
Banking & Capital Markets (BCM): The long-term trend of consolidation among small- and medium-sized banking institutions will likely continue as banks seek revenue growth and cost economies in an interest rate and regulatory constrained environment. FinTech continues to be a disrupting force, but the sudden exit of investors in the online lenders’ loan products has resulted in sharp declines in loan volumes and stock prices. As a result, we may see more consolidation in this space.
Asset & Wealth Management (AWM): Deal activity will likely remain steady largely driven by buyers’ and sellers’ needs to address their strategic goals, including product and strategic rationalization, expansion of distribution and expense management through scale vs. ordinary course M&A activity. However, transactions may be executed with a greater level of caution and scrutiny as financial markets deal with looming global growth concerns and other geopolitical issues.
Automotive: Three disruptive forces – smart cars, autonomous vehicles and ride sharing – will likely continue to drive automotive M&A headlines in 2016, and new entrants gaining traction will force traditional automotive participants to think about their strategies differently.
Chemicals: Companies have been motivated to grow by acquisitions or to add shareholder value through portfolio re-alignment. Private equity will likely continue to look for opportunities to deploy capital at an increasing rate over the next 12 to 24 months.
Industrial Manufacturing (IM): Dealmakers in this space may pursue less risky strategic alliances to expand market share and optimize value as an alternative to pure M&A plays.
Transportation & Logistics (T&L): We may see a strong positive outlook for global M&A activity driven by the continued expansion of e-commerce and the demand it creates for investment in the logistics sector, in addition to corporations outsourcing logistics as it comes a more specialized and technology-driven function.
Engineering & Construction (E&C): Continued high levels of liquidity on balance sheets to fuel non-organic growth opportunities may influence M&A activity in the engineering & construction space as we enter the second part of 2016.
Aerospace & Defense (A&D): Strong defense company balance sheets and solid fundamentals in the commercial portion of the sector will likely contribute to an improving deal market in 2016.
Metals: High levels of liquidity on corporate balance sheets, strong economic recovery, and pent-up demand in developed countries may spark metals M&A growth.