2016 M&A Outlook Survey

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U.S. executives on M&A: full speed ahead in 2016

U.S. deal-makers are motivated by low interest rates, resilient stock prices, solid employment numbers and an abundance of cash.

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Acquisition momentum is expected to continue in 2016

Last year, M&A reached record levels in the U.S. and we expect the market to remain extremely active in 2016. KPMG and FORTUNE Knowledge Group surveyed over 550 M&A executives to get a forward-looking view of the deal landscape.

A Strong Appetite for M&A

When asked what factors most explained the current appetite for M&A, respondents noted the need to fortify a competitive position in current markets (58 %), as well as the need to expand beyond current boundaries and to satisfy shareholder need for growth (both 26 %).

What factors best explain the current strong appetite for M&A?

Fortify competitive position in the current market

58%

Expand beyond current markets

26%

Satisfy shareholder pressure to accelerate growth

26%

Employ robust cash reserves

23%

Enlarge global footprint

23%

Tap surplus credit worthiness

15%

Buyers are motivated by a desire to enter new lines of business and to expand customer reach

What is motivating this activity? The largest percentage of respondents said their acquisitions motivated by a desire to enter new lines of business (37%) or to expand their customer reach (37%). Other reasons include expanding their geographic reach (36%), enhancing intellectual property or acquiring new technologies (34%), or because a strategic target became available (25%).

What is the primary reason for the acquisitions you intend to initiate in 2016?

Expand customer base

37%

Enter into new lines of business

37%

Expand geographic reach

36%

Enhance intellectual property or acquire new technologies

34%

Opportunistic—target becomes available

25%

Financial buyer looking for profitable operations and/or gain on exit

20%

Invest in another function in the supply chain

16%

Respond to activist investor

13%

Defend against competition

7%

Cash will drive deals

Several macro-economic factors should facilitate M&A activity in the coming year. The largest percentage of respondents (51 %) cited large cash reserves and/or commitments. Deal activity should also be driven by the availability of credit on favorable terms (36 %), improved consumer confidence (32 %), opportunities in emerging markets (25 %), and improving equity markets (17 %).

Which factor do you think will most drive deal activity in 2016?

Large cash reserves/commitments
51%
Corporations and PE funds are sitting on record amounts of cash and uninvested capital and need to make that money work, especially in today's low interest rate environment.
Availability of credit on favorable terms
36%
Although growth has been slowing in certain emerging markets, most notably China, those geographies continue to provide attractive investment opportunities.
Improved consumer confidence
32%
Low interest rates and favorable credit markets have made financing deals currently much easier than just one or two years ago.
Opportunities in emerging markets
25%
According to the Conference Board, consumer confidence rebounded in October and indicates that consumers are feeling more optimistic about the current job market and business conditions.
Improving equity markets
17%
The Dow and S&P 500 both hit record highs in November.

Market valuations

However most dealmakers felt that current market valuations were not sustainable for their industries

Are the current market valuations sustainable for your industry?

   

What factors lead to deal success?

Successful acquirers focus on integration, valuation and due diligence to reach strategic goals and increase shareholder value.

Well executed integration plan

39%

The correct valuation/deal price

31%

Effective due diligence

18%

Positive economic conditions

11%

Other

1%

Sectors expected to have the most deal activity are those characterized by transformation

Technology

Technology

70%

Tech acquirers are motivated by a desire to gain access to data analytics, cloud, security and the internet of things

Pharmaceuticals / Biotechnology

Pharmaceuticals / Biotechnology

60%

Pharma companies are motivated mostly by gaining access to clinical research

Healthcare Providers

Healthcare Providers

47%

The Affordable Care Act is expected to be the most significant driver for 2016 deal activity for healthcare providers.

Media / Telecom

Media / Telecom

42%

Media/telecom acquirers are focused on mobile devices and converging technologies

Consumer
Markets

Consumer
Markets

27%

M&A trends are motivated by a need for product and service growth and industry consolidation and the response to competition

Energy

Energy

21%

Deals will be driven by consolidation of core businesses, competition and the persistence of lower oil prices

U.S. ranked the most popular deal destination

Which countries and regions are most attractive for M&A investors? A whopping 79% chose the Unites States, probably influenced by its relatively healthy economy and receptive credit markets. Survey respondents were also attracted to Western Europe (21%), North America (13%), and China (11%), as well as the rest of Asia (11%). (Multiple responses permitted).

In which regions/countries will you primarily invest in 2016?

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North
America (not
including the U.S.)

13%

+

United States

79%

2016

+

South
America
(not including Brazil)

5%

2016

+

Brazil

6%

2016

+

Western
Europe

21%

2016

+

Eastern
Europe (not
including Russia)

5%

2016

+

Middle East/
Africa

3%

2016

+

Asia
(not including
China or India)

11%

2016

+

India

10%

2016

+

Russia

2%

2016

+

Australia/New Zealand

2%

2016

+

China

11%

2016

(Note: Figures total more than 100%.)

Webcast: 2016 M&A Outlook

On Demand Webcast

Event Overview: Listen to professionals from KPMG’s M&A practice as they discuss key conclusions from the 2016 M&A Outlook Survey findings and provide recommendations on the critical elements to achieve a successful transaction, including getting the valuation right, optimized due diligence and tax planning, and well-executed integration plans.

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Contact us

KPMG's Deal Advisory, Corporate Finance, Strategy and M&A Tax teams are the place to turn for a broad range of advice in your M&A transaction. We can support you with services that cover the full life cycle of a deal—and help you create the value you seek, while avoiding unnecessary surprises.

To learn more about how KPMG can assist with your specific needs, call:

Daniel Tiemann U.S, Group Leader,
Deal Advisory and Strategy
312-665-3599 dantiemann@kpmg.com
Connect with Daniel
Phil Cioffi U.S. National Leader,
M&A Tax
212-872-2160 pcioffi@kpmg.com
Connect with Phil
Philip Isom Global Head of M&A
312-665-1911 pisom@kpmg.com
Connect with Phil
Gavin Geminder U.S. National Leader,
Private Equity
415-963-7177 ghgeminder@kpmg.com
Connect with Gavin
Alex Miller U.S. Services Lead,
Strategy
312-665-1325 amiller@kpmg.com
Connect with Alex

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