This report is the result of a survey of more than 1,000 executives to gauge their expectations for M&A activity in 2018 and to better understand their experience with prior transactions.All survey participants work in either private or public companies or private equity firms with annual revenues of $10 million or greater. The participants consist of senior executives (director-level or higher) involved in M&A activity. One-third of corporate respondents work in the C-Suite, while half of private equity respondents are involved in fund management.
Corporations and private equity firms foresee an acceleration of merger and acquisition (M&A) activity in 2018—both in the number of deals and the size of those transactions.In Deloitte’s fifth M&A trends report, we heard from more than 1,000 executives at corporations and private equity firms about the current year and their expectations for the next 12 months. The results point to strong deal activity ahead: About 68 percent of executives at US-headquartered corporations and 76 percent of leaders at domestic-based private equity firms say deal flow will increase in the next 12 months.
Further, most respondents believe deal size will either increase (63 percent) or stay the same (34 percent), compared with deals brokered in 2017.Since our previous annual survey, the environment for domestic M&A has been muted due to concerns about, among other things, the economy, political and regulatory uncertainty, market volatility, and valuations. While those concerns are all diminishing according to findings from our new survey, 1 in 8 respondents cites delayed legislation as a potential obstacle ahead. That concern could abate if significant pro-business legislation, including tax reform, materializes in the coming months.
Tools and technology are making an impact
Almost two-thirds of respondents (63 percent) are going beyond the spreadsheet and using new M& A technology tools to assist with reporting and integration. Respondents say the tools help reduce conflicts, costs, and time—likely key factors in making more deals work.
In it for the technology
Technology acquisition is the new No. 1 driver of M& A pursuits, ahead of expanding customer bases in existing markets, or adding to products or services. Talent acquisition continues to trend upward as a motivation for M& A strategies. In a new question in this year’s survey, 12 percent of respondents cite digital strategy as the driving force behind M& A deals for the coming year; combined, acquiring technology or a digital strategy accounted for about a third of all deals being pursued.
Bigger firms are more confident
Corporate executives and private equity investors from the largest firms—with revenues and investments in excess of $1 billion—are considerably more confident than their smaller counterparts that they will engage in bigger deals in the coming year.
Deals are working better
Only a handful of corporate respondents (12 percent) say that a majority of their M& A deals are not generating the expected return on investment. This is down from just under 40 percent in spring 2016. An even slimmer number of private equity survey respondents (6 percent) say that a majority of their deals are missing the mark—this is consistent with what respondents reported a year ago and continues the downward trend from a high of 54 percent back in spring 2016.
Full speed ahead for divestitures
Divestitures should persist as a major focus in 2018. Seventy percent of survey respondents plan to shed businesses next year—driven by financing needs and strategy shifts.
Driven by convergence
Industry and sector convergence continue to be major themes, with a strong bias toward vertical integration. Top industries that respondents predicted to experience convergence are life sciences and health care, technology, and financial services.