Global M&A activity surges as companies gain confidence

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August 5, 2014

 

By Robert McCutcheon, Partner, US Industrial Products Sector Leader

Global industrial products (IP) deal value is on pace for the strongest year since the financial crisis. According to our latest quarterly M&A reports for industrial products, there were more deals, bigger deals, and a substantial rise in deal value from the last quarter and from the same period last year. Financial investors were also active in exiting more businesses acquired during the boom of ’07-’08.

Across all of our IP sectors (aerospace and defense, chemicals, engineering and construction, industrial manufacturing, metals, and transportation and logistics), there were 223 transactions worth $50 million or more, totaling $148 billion in the second quarter of 2014, compared to 173 deals and $56 billion in total value during the second quarter of 2013. Overall deal activity in the second quarter of 2014 was also up notably over the first quarter of 2014, which recorded 169 deals totaling $68 billion.

These numbers indicate the growing strength of the overall global economy and the forces of globalization, which increase the need to seek out new markets. Companies are taking on more risk, a sign they think the forward momentum will continue. They are making more cross-border deals and more acquisitions outside their industries. They are searching for new product markets as well as new geographical markets, especially in fast-growing regions. We also see some deals that are being driven by the need to acquire intellectual capital and technology to support innovation and product development.

Financial investors are showing similar confidence by increasing deal-making. While strategic investors continue to drive deal activity, there is a clear uptick in financial investors, particularly in more established global markets. This trend toward more financial investors coming into the market is at times creating more competition for deals. However, there are also cases in which financial and strategic investors are working together on deals.

Looking at regional trends, North America continues to be very active, with lots of investment in and out of the United States. This activity is a reflection of confidence in the US market, which was echoed in our last Manufacturing Barometer. Europe is still struggling with growth so investment is mostly outbound and domestic. Asia-Pacific continues to be very attractive because of its huge potential and developing middle class.

The average deal value this quarter was more than double last year’s second quarter ($662 million vs. $332 million) and more than the $399 million of the first quarter of 2014. The number of mega deals also rose dramatically, with 26 mega deals, compared to 10 mega deals in the second quarter of 2013 and 17 deals in the first quarter of 2014.

I expect the number and size of deals to continue to grow this year as economic conditions improve. But acquisitions increase risk exposure in many areas, including compliance, systems, and supply chain. In cross-border deals, the risks of talent integration become magnified because of diverse cultural and social norms. So while this may be a good time for deal-making, companies need to understand and manage potential risks in order to successfully add value.

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