Getting on with business in today’s dealscape

July 26, 2017

Q2 2017 Deals Day findings
By John D. Potter, PwC US Deals Sector Leader


After waiting months for action from Washington, dealmakers are collectively focusing on the here and now rather than waiting for change. While the desire to get on with business is innate, the courage to do that can be harder to find. But in the M&A market, the balance of caution and the push to take care of business means that deals that make real sense are still getting done.


Dealmakers’ willingness to adjust to economic, political and regulatory uncertainty is showing up in vignettes. They point to a market that’s potentially changing in ways that could make it healthier over the next year or so. And they suggest a “dealscape” where smaller transactions generate long-lasting shareholder value and new energy. Change for change’s sake can be futile. But avoiding necessary change can make businesses irrelevant. This agility is even more essential in the current economic environment.


Using trailing 12 months’ data — to smooth out short-term volatility — we see volume still climbing, as it has for the last eight years. But the value of deals has declined nearly 8% from a year ago.1 That’s the second year in a row we’ve seen that happen, and it hints that the fundamentals in place six months ago continue to drive the market.  Multiples and valuations are still flush; this is more about the size mix.



Finding out where we are

The numbers pretty much all point the same way. The market is evolving. Almost across the board, volume is up and value is down. And there seems to be more pressure to get the right deal done, not just any deal.



Deals by US companies in other countries are commanding a higher price. While the number of outbound deals hasn’t changed much from a year ago, the value has more than doubled. This combination hints at increased interest and competition for overseas assets, plus a willingness to make bigger bets. That may be the result of companies looking to Europe, where deal activity remained strong during the first half of the year.


Divestitures are up, too, though the trend isn’t as strong. The 11% increase in volume  suggests companies are shedding assets that no longer fit or trimming unprofitable divisions. Whatever the reason, companies are trying to make themselves more efficient and be in a better position to grow. That could help spur future deal activity.


IPOs also are increasing. The value was triple that of the first half of 2016,  while volume increased more than 70%. IPOs aren’t the reliable indicator they once were, but the increase is encouraging and hints at a reasonably strong pipeline of deals. It doesn’t hurt that investors deployed $18.4 billion to US VC-backed companies in Q2 2017, a 27% increase from Q1 2017, according to the latest PwC Moneytree report.


All this adds up to a busy time for our teams, who work with companies before transactions are announced and long after they close. While deal volume hasn’t grown exponentially from last year, buyers and sellers continue to actively reshape their portfolios and capital allocation plans.


Shaping the market

The collective decision to plow ahead means that the factors shaping markets for the past few years—lower growth and low rates—are still active. Many companies hope to grow through buying similar or complementary companies. Some are looking at adjacent markets or channels. Others want to deepen and extend their relationship with customers.


This dynamic is especially strong in the consumer sector, which accounted for nearly one in five deals in the first half of the year. Sedate economic expansion is pushing consumer companies toward other growth paths. Expanding their reach through deals  may be an easy way to generate bottom-line growth, but it often means competition. Right now, it seems like every asset in the sector has multiple potential buyers eyeing it.


There’s even more demand in the tech sector, which also represented nearly one in five deals in the first half of 2017. That’s because tech deals can involve not only tech companies but also non-tech companies that fear being strategically outflanked in a rapidly changing world. For instance, a logistics company might consider buying a company that creates ways to more easily track items rather than just buying the product itself. Buying the company means they won’t have to share that technology with competitors.


On the less active end of the spectrum, the media sector accounted for about one in 10 deals. Changes in how people consume news and information are forcing media companies to develop new business models — an ongoing, arduous process where multiple potential paths to consistent profits remain. The dynamics when it comes to deals in this sector are likely to endure for some time.


Getting healthy

Another notable shift from 2016 has been the decline in megadeals — those worth more than $5 billion. Amazon’s $13.4 billion bid for Whole Foods generated countless headlines, but deals of that scope are clearly down from previous years. And guess what? That’s not necessarily a bad thing.


Compared with megadeals, deals of less than $500 million can create more shareholder value. Why? One simple reason: There are more of them. So if volume is higher and value is lower, we may see fewer megadeals but also more shareholder value. That could boost market momentum, and it’ll help make companies – and the economy – healthier in the long run.


Some big deals still get done


Even so, megadeals played a role in value increases in some sectors. While the number of deals in pharmaceuticals and life sciences and health services was down from Q2 2016, transaction value in both sectors was the highest in more than a year.


Oil and gas also saw vigorous activity in the first half of 2017 despite a decline in oil prices during the period. While volume was modest, megadeals boosted deal value significantly year-over-year in Q2, with many acquirers’ capitalizing on their access to cash.


The insurance sector saw deal value more than triple in the first half of 2017. The industry’s push for revenue enhancement – including divestitures of capital-intensive or underperforming businesses – and interest from non-sector capital are expected to keep feeding a healthy appetite for deals.


Making the most of it

The increase in deal volume means there’s plenty of work for M&A teams. Our clients continue to crave insight from experienced deals teams about the issues that determine the success or failure of a transaction. Because of all the work that happens before deal announcements are made, the bevy of conversations that are happening today could portend more activity in months ahead.

Visit our deals industry insights website for more.


1Thomson Reuters with PwC analysis.


Colin Wittmer

Deals Leader, PwC US Email

Curt Moldenhauer

Deals Solutions Leader, PwC US Tel: +1 (408) 817 5726 Email: