NEW YORK, Nov. 15, 2017 — After a relatively muted 2017 in the domestic merger and acquisition (M&A) environment, 2018 is set to see an acceleration of M&A activity – both in the number of deals and the size of transactions – according to over 1,000 U.S. corporate dealmakers and private equity firms surveyed in Deloitte's “The State of the Deal: M&A Trends 2018” report.
About 68 percent of corporate executives and 76 percent of private equity leaders polled expect to see an increase in deal volume over the next 12 months. Further, most respondents believe deal size in 2018 will either increase (63 percent) or stay the same (34 percent), compared with deals brokered in 2017.
“There are strong signals that corporations and private equity firms are targeting bigger deals and anticipating brisker activity in 2018,” said Russell Thomson, managing partner of Deloitte's U.S. merger and acquisitions services practice. “The appetite for technologies like machine learning, robotics, artificial intelligence and advanced analytics is large and growing. We're seeing some organizations buy smaller tech companies to enable strategic growth and others — typically companies well outside of the tech sector — actively looking to converge their businesses with tech companies to achieve marked transformation.”
Tech acquisition emerges as new top deal driver, as convergence continues
Technology acquisition ranked No. 1 as the top driver of corporate M&A transactions – surging from 6 percent in Spring 2016 to 20 percent in the current survey.
For the second year, the technology sector held its perennial top post as the sector most likely to converge with others (24 percent) in the coming two years, in the 2018 report. Those sectors with which tech is expected to converge most in coming years include telecommunications (23 percent) and retail (12 percent).
“From what we've seen, technology is both directly and indirectly driving a lot of M&A optimism for 2018,” continued Thomson. “Directly, the need to acquire technologies for strategic growth is clear. Indirectly, evolving tools and data analysis offer dealmakers deeper insights and increased comfort with where they're placing big bets. Technology is truly disrupting how companies do and close deals by enabling faster, more informed and efficient decision-making that gives competitive advantage to those wielding it well.”
Cross-border M&A cools
While most respondents (92 percent) expect some portion of their organizations' acquisitions to be made in foreign markets in 2018, 34 percent say less than one-fifth of their deals will be cross-border — up from 26 percent in Fall 2016.
Canada (39 percent) and the United Kingdom (29 percent) continue to top the list of foreign targets for all respondents again in M&A Trends 2018 as in previous reports. However, there is a sharp decline in those looking to China and Japan. Only 18 percent of all respondents said they would pursue deals in China, down from 25 percent a year ago; and just 14 percent of all respondents say they will look to Japan, down from 24 percent in last year's survey.
Notably, private equity investors expressed increased interest in Central America, with 32 percent targeting the region, compared to 19 percent a year ago.
Other report findings included:
- Hot year for divestitures ahead – As appetites for divestitures remain strong again for 2018, 70 percent of all respondents expect to pursue divestitures in the year ahead with 41 percent of divestitures expected to be incremental, 39 percent expected to be transformative and 20 percent expected to be a mix of both.
- M&A challenges remain, but soften slightly – While macroeconomic concerns—namely global economic uncertainty (20 percent, down from 26 percent in 2016), market volatility (17 percent, down from 21 percent), deal valuations (15 percent, down from 16 percent) and interest rates (11 percent, down from 17 percent)—still top the list of obstacles for the 2018 M&A outlook, some respondents (13 percent) cite potential delays in business-related legislation as a concern.
- New M&A tools help achieve deal success – Almost two-thirds of respondents (63 percent) say they are going beyond the spreadsheet and using new diagnostic tools to assist with the deal making process. Respondents say the tools help make post-deal integration smoother, reduce conflicts and costs, and shortens the time it takes to complete the transaction. Of those who have not used M&A technology tools yet, 62 percent say they would like to, moving forward.
About the survey
Deloitte's “The State of the Deal: M&A Trends 2018” report is now in its fifth edition. The survey was fielded online from Sept. 6-24, 2017 by market research firm OnResearch. It polled 1,016 executives involved in M&A at U.S. corporations (76 percent) and private equity firms (26 percent). Corporate respondents' organizations were public (43 percent) or privately held (57 percent). Earlier iterations of the survey were released in Fall 2016, Spring 2016, Spring 2015, and Spring 2014.
Deloitte provides industry-leading audit, consulting, tax and advisory services to many of the world's most admired brands, including more than 85 percent of the Fortune 500 and more than 6,000 private and middle market companies. Our people work across more than 20 industry sectors to make an impact that matters — delivering measurable and lasting results that help reinforce public trust in our capital markets, inspire clients to see challenges as opportunities to transform and thrive, and help lead the way toward a stronger economy and a healthy society. Deloitte is proud to be part of the largest global professional services network serving our clients in the markets that are most important to them.
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