2013 Could Be Another Sluggish Year For M&A
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This morning's big news was a nine billion dollar, multi-company acquisition by Freeport-McMoRan Copper & Gold Inc, (NYSE: FCX), as it attempts to broaden its commodity exposure with ventures in the oil and gas arena. While the deal is impressive, overall M&A activity is near 10-year lows, and it is not expected to pickup in 2013.
Fewer US companies report plans to execute an acquisition in the next year as appetite for M&A fell to 23 percent from 34 percent six months earlier, according to Ernst & Young LLP's US Capital Confidence Barometer. Of those companies that are planning an acquisition, 81 percent say they will consider deals worth $500 million or less, suggesting that deals next year will be smaller and focused on filling strategic gaps and extending existing businesses.
"The outcome of the US election removes some uncertainty in the regulatory environment, but the fiscal cliff will have to be solved and there will need to be a sign that a declining Eurozone will not lead to a global financial crisis and consumer confidence will need to improve before CEOs feel more comfortable with the deal market," says Richard Jeanneret, Americas Vice-Chair, Transaction Advisory Services for the global Ernst & Young organization.
Lack of opportunity was not the cause of the M&A slump in 2012. Cash is plentiful and credit is relatively available to companies with strong balance sheets, and in most sectors asset valuations were reasonable. The main reason for the lack of activity was corporate conservatism as the c-suite and boardrooms shied away from inorganic opportunities and large transformational investments, favoring an internal and strategic look at how to return value to shareholders and grow organically.
In 2012 private equity experienced growth in M&A, as did Brazil, healthcare and life sciences, and oil and gas, while China, financials, and consumer products struggled.
2013 deals will be smaller and more strategic, as companies fill product gaps and seek new market opportunities. Ongoing European instability may also present opportunities for US buyers with healthy balance sheets.
Fewer US companies report plans to execute an acquisition in the next year as appetite for M&A fell to 23 percent from 34 percent six months earlier, according to Ernst & Young LLP's US Capital Confidence Barometer. Of those companies that are planning an acquisition, 81 percent say they will consider deals worth $500 million or less, suggesting that deals next year will be smaller and focused on filling strategic gaps and extending existing businesses.
"The outcome of the US election removes some uncertainty in the regulatory environment, but the fiscal cliff will have to be solved and there will need to be a sign that a declining Eurozone will not lead to a global financial crisis and consumer confidence will need to improve before CEOs feel more comfortable with the deal market," says Richard Jeanneret, Americas Vice-Chair, Transaction Advisory Services for the global Ernst & Young organization.
Lack of opportunity was not the cause of the M&A slump in 2012. Cash is plentiful and credit is relatively available to companies with strong balance sheets, and in most sectors asset valuations were reasonable. The main reason for the lack of activity was corporate conservatism as the c-suite and boardrooms shied away from inorganic opportunities and large transformational investments, favoring an internal and strategic look at how to return value to shareholders and grow organically.
In 2012 private equity experienced growth in M&A, as did Brazil, healthcare and life sciences, and oil and gas, while China, financials, and consumer products struggled.
2013 deals will be smaller and more strategic, as companies fill product gaps and seek new market opportunities. Ongoing European instability may also present opportunities for US buyers with healthy balance sheets.
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