A number of macroeconomic trends, including increased corporate M&A activity in the second half of 2010, the availability of attractive debt financing, and stronger valuations for corporate assets, have set the stage for more corporate M&A activity in 2011.
"For the past 18 to 24 months, companies focused their deal making strategies on synergies to improve cost structures to withstand the challenging economic environment," says Martyn Curragh, US transaction services leader for PricewaterhouseCoopers:
Backed by stronger credit and equity markets going into 2011, corporations have shifted their transaction focus from a mindset of recovery to strategic growth, to generate additional revenues. Furthermore, as debt markets have improved, private equity funds are beginning to spend more time looking for and executing on new opportunities, rather than focusing on existing portfolio companies and waiting to deploy capital.
According to PwC, corporations are again focused on growth via acquisitions, both in new geographic markets and in adjacent sectors and new technologies. In fact, the acquisition of technology is a prevailing trend in several sectors PwC identifies as particularly active next year. High-tech companies looking for joint venture opportunities or corporate suitors can look to the following market segments:
Healthcare -- Increased M&A and joint venture activity will accelerate, driven by the need to reduce costs, increase productivity, and develop more integrated business models. Managed care companies will continue to pursue growth opportunities abroad to diversify geographic risk, while the medical device industry will be driven to consolidate by the need to achieve cost savings as it combats the impact of federal excise taxes and downward pressure on pricing and reimbursement.
Technology (all sectors) -- After rebounding in late 2009, technology M&A volumes and aggregate values sustained upward momentum throughout 2010 with growth in virtually all key sectors and overall for financial and strategic buyers. Economic optimism, strong liquidity, technology shifts, sector consolidation, and acquired innovation will continue to drive growth in technology M&A. The decade-long enterprise technology landscape will continue to consolidate around a handful of end-to-end hardware, networking, software, and services companies, which will also look to acquire technologies to differentiate or fill gaps in their cloud offerings. Meanwhile, pure-play alternatives will maintain their positions through tuck-ins and by combining with one another.
Look for continued acquisitions surrounding devices, services, and media oriented towards mobile connected consumers and enterprises. Internet majors will look to expand their offerings into local services and continue to respond to massive shifts in user behavior oriented towards community and social networking services.
Aerospace and defense -- M&A activity in the defense sector is expected to increase due to companies rethinking their core businesses as defense spending priorities continue to evolve. PwC expects cyber security and communications will be emphasized among defense spending priorities. Over the long haul, major defense consolidations could unfold as growing budgetary pressures force companies to improve efficiencies. Also, increased M&A in the commercial aerospace sector is expected, given the robust, long-term forecast for aviation.
Automotive -- Over the next three to five years, M&A will be driven by new technologies, regulations, and consumer requirements. Tier 1 suppliers will work to realign their product portfolios to take advantage of the restructured industry. Developed markets will focus on fuel economy, hybrid and electric vehicles, and entertainment and communications in vehicles, while developing markets will focus on delivering low-cost vehicles and acquiring technologies.
Is your company likely to look for a deal in 2011?