The Deloitte M&A Index H1 2015
Deal momentum continues into 2015
- In our previous reports we highlighted that globally corporates are in a strong position to pursue M&A. They have rebuilt their balance sheets, accumulated record levels of cash and stock market rallies have boosted their valuations.
- Our projections of the M&A volumes show that the momentum that started last year is continuing in 2015. Despite the expected dip from Q4 to Q1, the Deloitte M&A Index forecasts deal volumes for H1 2015 are likely to be 8% higher than for the same period in 2014. So far this year $583 billion worth of deals have been announced, surpassing the $563 billion announced in Q1 last year.
- M&A volumes are being influenced by factors such as the decline in oil prices, appreciation of the dollar, the rise of China as a global player in M&A and pressure from investors to focus on top-line growth. The diverging growth trajectories between the US and other economies are opening ‘deal corridors’ for US corporates to acquire attractively priced assets abroad. We estimate nearly one in four dollars spent on deals in Europe last year was either from the US or Asian countries such as China.
- In addition to the UK, six other European nations are planning to hold elections in 2015. The build up to US elections next year will also start in the coming months. These events could have a temporary impact on the pick-up in deal momentum.
The story in numbers: factors influencing M&A in 2015
- In 2014 $797 billion worth of deals were announced, 27% of which were inbound deals from non-European acquirers, the highest percentage in well over a decade. This meant every fourth dollar spent on European M&A came from either the US or Asia.
- As the oil industry struggles to make production sustainable at “new normal” prices, we estimate that 80% of the cash reserves of the 120 largest oil companies are residing with 26% of the companies. Such companies with a strong balance sheet may want to acquire assets when valuations are low, to boost their growth prospects.
- As the Euro weakens against the US dollar, many prized assets abroad now look attractive to US corporates: the Euro lost 21% of its value against the US dollar since 2014 and the inbound deal volumes into Europe from the US increased by 30% during the same time period.
- In 2014, Chinese companies announced a record $46.8 billion on outbound M&A, the highest figure so far and more than ten times the amount spent in a decade.
- In 2014, the lion’s share of deals took place in the TMT sector with $559 billion of deals announced. So far in 2015, $123 billion of deals have been announced, outstripping other sectors.
- Deal making in Consumer Business increased by 37% from 2013 to 2014, with nearly $81 billion worth of deals already announced in 2015.
What's the outlook for 2015?
- A positive outlook on growth coupled with attractively priced deals make Europe a destination of choice for deal makers in 2015.
- Once the oil price begins to stabilise we expect deal making in the industry to pick up steam in coming quarters, as companies respond to pressure to increase their returns on capital.
- Chinese deal making will continue to diversify, with acquisitions continuing in the TMT and CB sectors as the economy recalibrates from manufacturing export oriented to a consumption driven economy.