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.
Key
Findings
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.
