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Forecast: More Deal-Making in 2011

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?

7 comments on “Forecast: More Deal-Making in 2011

  1. AnalyzeThis
    December 13, 2010

    I agree that we'll see more M&A activity in 2011.

    Yes, a stronger credit market will be a factor, but especially in the tech sector I really do believe that some of these companies that have been accumulating huge cash reserves will finally open up their checkbooks and get aggressive. Apple I think is the most obvious example, but there are plenty of other of players as well. It's clear that Google is looking to make some moves as well, given their recent multi-billion dollar attempt to bring Groupon aboard.

    I think we'll see some really unexpected, gigantic deals in tech in 2011. This seems like the perfect climate to make a bold, dramatic acquisition that could potentially reap colossal long-term benefits.

  2. DBertke
    December 13, 2010

    Every business keeps its options open to M&A activity.  As they say, “Its part of the business!”

    If you want to look for M&A activity candidates, you need to look at those companies that plan to grow by acquisition and those that desperately need a partnership to survive the current market trends.  Having observed the process fairly close a couple of times I can tell you that all real deals are done in complete silence!  The government has demanded that any such speculation about M&A should not be discussed until the papers are signed.  If word leaks out, you go to jail.  If you have any doubts, look at the people who were recently pulled in for insider trading.  Yes they will catch you.

    So there is one sure thing you can bet on.  If you hear rumors about an M&A, they are most likely untrue or from a source far from the action.  Which should be ignored on its own merits.  The only people who really know what is going on are barred from telling anyone.

    If you want to try to predict M&A, start researching growth companies, look at what they do and who are their competitors.  Then look at the companies that either compete with or complement those companies.  From that analysis, you can probably establish a list of candidates, but that is as far as it goes.  Everything else is pure speculation.  Me, I don't gamble!  I watch the idle talkers and those that pretend to know what is going on, but as I said, if they really know anything, they can't talk, so if they are talking, they don't know anything.

    If you are confused by this post, then I have succeeded in showing you how convoluted the M&A process truely is and that you can spend a lot of time and effort only to be wrong.

    Have fun,

    DAB

     

  3. SP
    December 13, 2010

    Acquisition is the most attractive strategy in business especially when economy is recovering from meltdown. Just acquire a potential startup or competive business and then kill the product thats in your direct competition.

  4. Barbara Jorgensen
    December 13, 2010

    Good point, DennisQ. The tech acquisitions that have taken place in the second half of the year have almost exclusively been for cash. Just because the credit market is loosening up doesn't mean companies have to take advantage of that. On the other hand, having a reasonale level of debt used to make you less likely to be an acqusitiion target if you aren't interested in being acquired.

  5. elctrnx_lyf
    December 14, 2010

    The forecast seems certainly true since the M&A in the areas of Aerospace and Automotive certainly will e increased since the demand for the low cost automobiles and the low cost air services is always increasing because of the spending ability of the people in the developing nations. Regarding the medical domain there are lot of positive trends since this is one of the stable industry at the same time it takes lot of effort for any company to actually release a product into the market with all the regulations passed.

  6. J-TX
    December 20, 2010

    Let's look back at the period immediately following the last big recession.  Arrow and Avnet went on buying sprees to leapfrog each other, in order to momentarily claim the title of WBD – World's Biggest Disti.  And chip makers did the same.  TI bought 5 companies, National bought a few, Intel, Lattice, lots of others.

    I expect a similar feeding frenzy in the coming 2 quarters, as many smaller chip makers have been weakened by the recession, having to lay off sales force, etc.  They are ripe to be swallowed up.  Not much more can be done in the Disti world as far as M&A, but of course as I say that, NuHo and Richardson have fallen in the last year…

    It has already begun, with some interesting twists.  Discrete maker Microsemi's purchase of White Electrionics and now Actel is a prime example.  Interesting here:  Synergies are not in culture, technology, geography, process, or Capex.  Synergies here are in customer base.

  7. itguyphil
    December 21, 2010

    You're right. Just look at what's happening on the hardware, software side: Buyouts left & right. It's only a matter of time until the same wave takes over the component industry.

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