According to a Deloitte survey, 76% of leaders at domestic Private Equity firms are expecting an increase in M & A activity in the next twelve months.
After reaching $2.6 trillion in 2017, global Mergers and Acquisitions (M&As) are expected to hit a record $3.2 trillion in 2018.
Mergers and Acquisitions have not seen such an uproar in activity since the economic crisis in 2017. Regardless of what report you read concerning this topic, there seems to be a unanimous consensus that 2018 will be a record setting year for M&As all over the world.
Growth is forecasted for M&A deals in three out of the four global regions in the first quarter of 2018.
M&As in Asia-Pacific are expected to increase by 14%, Europe, Middle East and Africa are expecting an activity growth of 6%, whilst Latin America anticipates a 3% growth.
The only region expecting to see a decrease in the first quarter of 2018 is North America with a substantial figure of 11%. Experts suggest this is down to exceptionally strong activity in the first quarter of 2017.
However North America is expecting to see strong growth in M&A activity over the coming 12 months.
The major driving force behind the strong M&A activity over recent years is the trend growth in emerging economies.
When growth is slow, companies often turn to M&As to provide them with manipulated growth and revenue on their balance sheets. Low inflation also contributes to the strong activity as companies looking at M&As to grow profit and revenue. A third factor is the low interest rate, when the interest rate is low, the cost of borrowing decreases hence companies are allowed to borrow money for acquisitions at lower rates.
However, expert analysts are throwing in a word of caution for M&As going forward.
The current uncertain regulatory and political environment has had an effect on mega-mergers (the merging of two existing corporations).
Companies want to partake in large-scale deals, but many are holding back to see if the environment clears before they increase their efforts, time and money only to find regulations are preventing them from closing out deals at a later date.
Companies are also wary to see how tax reforms will settle to see if they want to borrow more or less money.
Sectors and Trends
Taking all sectors into consideration, there are plenty of contrasting views on which industry will be the leader in 2018.
Experts are predicting that the healthcare industry is the most likely to see the most deals. Healthcare M&A globally is very active in pretty much every single region, including North America, where a decline is expected.
Other industry specialists including Mergemarket is placing its bet on the consumer goods sector, calling it ‘the most compelling sector for 2017’.
This industry has come a long way in previous years, from being considered as one of the lesser industries to now completing deals like Amazon’s acquisition of Whole Foods in 2017.
Despite their differing views, experts have all agreed on the prediction that topics like Artificial Intelligence (AI) and Data Privacy will have profound impacts on M&A activity.
M&A is a slow-moving industry and there has not been a lot of change over the past 20 or 30 years. Now, AI is being used as a catalyst to speed up processes such as due diligence and creating business models.
Expect more AI driven products and services to meet the needs for the M&A market in the future.