Future of the deal

We explore the underlying shifts and key themes driving M&A markets

The beginning of a new M&A season

After four consecutive years of crossing the $3 trillion annual mark, the M&A market continues to surpass expectations, it crossed the $1 trillion mark within the first three months of 2018, the fastest ever pace.

The wind of change is underway – from a rise in shareholder activism and the return of private equity to the threat of disruptive innovation and potential trade wars – these themes are expected to have a major impact on the M&A markets.

Getting divestments right

Companies have completed record levels of acquisitions and as part of their value creation process, are actively realigning their portfolios and divesting non-core assets. But most report it is not easy to realise the anticipated returns.

Deloitte research shows that seven in ten firms are preparing an operation for sell off. Such moves are essential as businesses come under significant pressure to reduce costs, focus on core activities, and address major changes in consumer habits.  

With reserves of $1 trillion, what’s next for private equity dealmakers?

Private Equity (PE) have amassed record levels of capital and the pressure to deploy is growing. In 2017, we saw the highest levels of PE deal activity since 2007 and we expect this trend to continue.

PE firms have been particularly active in targeting portfolio divestments of the corporate sector. Competition for assets is increasing and driving up valuations and deal multiples, pushing PE firms to take on leverage not seen since 2007.

How will US tax reforms affect your future acquisitions?

The recent US tax reform are creating unique opportunities for M&A in the US.

The 2018 US Tax reforms brings the corporate tax down from 35% to 21%. There is also a significant tax reduction for American firms who return their overseas earnings to the US (that bill will go down by more than half to 15%). With US firms estimated to hold over $1.4 trillion of cash and liquid investments offshore, companies should model the effect of profit repatriation, and of domestic versus foreign acquisitions.

How can you turn the threat of disruption into opportunities through M&A and venture investment?

Companies are challenged for growth in their traditional businesses, making it imperative for them to innovate and create the “businesses of tomorrow”.

Across all sectors, companies are using M&A and corporate venturing to capture such opportunities. We estimate companies spent $634 billion on disruptive innovation acquisitions and investments between 2015 and 2017.

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