Mergers & acquisitions activity has picked up in the fourth quarter of 2010 in wholesale distribution and manufacturing. And if a series of surveys out recently are any indication, pent-up demand for acquisitions will push consolidation on a global level to take off in 2011.
In the U.S., according to Robert W. Baird & Company's November global M&A report, there was a 22.7 percent increase in the number of transactions in October, and announced dollar volume of deals jumped 62 percent. Middle-market deals remained strong, as well, with deal count up 48.8 percent and dollar volume up 47.6 percent.
As MDM reported in early November, M&A deal value in global industrial manufacturing in the third quarter of 2010 was up year-over year, according to a PwC report. According to the report, "recent updates and projections for the worldwide economy point to a supportive backdrop for M&A."
What's contributing to an increase in deal-making? Factors include better economic conditions, healthy balance sheets among strategic acquirers, access to credit at attractive terms, and capital allocation requirements for private equity firms, according to the Baird report.
While experts focused on the wholesale distribution sector have said that buyers are still looking at distressed companies as an opportunity for purchase, it seems that buyers may be expanding their views in 2011.
In the Thomson Reuters and Freeman Consulting Group's 2011 Outlook for Investment Banking Services, the report outlines objectives reported by survey respondents on why they are pursuing deals in 2011. Gaining market share in existing markets was most often cited, followed by expanding geographical presence. Acquiring undervalued assets was the fifth most-cited reason. (See graphic below.)
A recent survey from UBS Investment Bank and The Boston Consulting Group (BCG) looked at European companies' M&A plans for 2011. The survey results shed some light on plans by larger public companies globally. One in six of the companies surveyed are expecting to make a large-scale acquisition in 2011; large companies are twice as likely to do so.
One-third of respondents believe the next 12 months is the best time to go ahead with a major deal. Of those with M&A plans last year, half canceled those plans, according to the survey.
Alexander Roos, head of BCG's global M&A practice says: "But companies remain cautiously optimistic about deal activity. The lingering uncertainty offers opportunities for those CEOs who are prepared. … Next year's acquisitions – undertaken with the necessary rigor and with a clear strategy in mind – can hence become a powerful source of competitive advantage."