Next year is looking good for mergers and acquisitions, according to Moody’s Investor’s Service. That’s because of pent up demand, expectations of a continuation of historically low interest rates and cash piles that continue to grow.
“The vast majority of respondents project that 2017 will mark a rebound in M&A activity. Seventy-one percent of corporate respondents and 86% of private equity investors anticipate an uptick in transactions. An overwhelming majority of those surveyed expect activity to stay the same or ramp up, while only three percent foresee deal flow slowing in 2017,” Moody’s says.
After a scorching pace in 2015, M&A petered in 2016, although the year ended on a strong note “with an unprecedented wave” of activity, Moody’s says. And that momentum is expected to carry over to 2017. “More companies say they have increased cash levels and intend to use their cash to strike more deals,” the ratings agency notes.
According to the survey, which included 1,000 corporate executives and private equity investors, 75% of respondents expect deal activity to increase. And transactions may be bigger, with 64% of survey respondents expecting deal sizes to increase. Divestitures may also be a major focus in 2017: 73% of survey respondents say they plan to shed businesses next year; that’s up from 48% in Moody’s M&A Trends Report of mid-year 2016.
A top priority for executives was having a solid integration plan ahead of an acquisition. In the Moody’s survey, it was noted that effective integration planning was considered “the number one factor in ensuring that deals work.” This has also been the case in The NeuGroup universe. In a spring NeuGroup Global Cash and Banking group meeting, members were encouraged to leverage knowledge from outside of treasury and beyond finance and create cross-functional groups that can quickly integrate or divest a business; track lessons learned from past implementations and build institutional knowledge. For example, develop resource tools such as a questionnaire, deal sheet and contact list and update them on a regular basis; ensure good knowledge-transfer occurs and key documentation from the acquired company is retained or archived properly and finally, when possible, retain key employees from acquired company (S/T & L/T) and meet with SMEs early on and often in person.
Driving the late 2016 surge was the desire for technology, according to Moody’s; and a “major theme” of recent activity was positioning for the future through the acquisition of technology.
Companies report that they have “strong strategic imperatives driving their desire to do deals in 2017,” Moody’s says. “[S]tock prices remain close to record-high levels, and interest rates, despite the forecast for an increase, remain near or at historic lows, and more companies say they have increased cash levels and intend to use their cash to strike more deals.”