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PwC Says Fundamentals Are Strong For U.S. Mergers & Acquisitions Activity in 2013

Divestiture activity in 2012 reached highest level since 2005.

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NEW YORK – Ongoing access to capital and financing, strengthened balance sheets and divestiture activity will continue to fuel deal activity in 2013, according to PwC US <>.  An acceleration of deals taking place during the final months of 2012 may result in a lull in activity during the first quarter; however, these sound deal fundamentals are creating optimism that the balance of 2013 will be a stronger year for U.S. mergers and acquisitions (M&A).  
 
According to PwC’s U.S. M&A outlook, dealmakers remain hyper vigilant on diligence during the M&A decision making process, analyzing each outcome and the various impacts on investment and return scenarios to achieve certainty of deal success.
 
"The fundamentals for sustained M&A activity in 2013 are solid, with improving corporate confidence, increasing private equity activity from both a buy and sell side perspective, and relatively healthy debt markets. There remains strong competition for quality assets as both corporates and private equity continue to seek out deals to fuel their growth and deploy capital," said Martyn Curragh, PwC’s U.S. Deals leader.
 
"We’ve been supporting a range of buyers and sellers across a broad spectrum of industries, helping them raise capital through high yield offerings and providing diligence and valuation analyses for potential deals. Dealmakers have been very cautious and disciplined in evaluating transactions. They are placing a premium on a thorough analysis of potential risks and exposures and are seeking to ensure there is broad functional support to successfully manage deal execution and reduce the risk of value leakage."
 
With capital ready to be deployed, along with the increasing availability of financing, PwC expects companies and financial sponsors to use M&A to enhance their growth prospects in the New Year.  
 
Corporate cash levels remain steady at $1.1 trillion for the S&P 500, indicating continued opportunity for companies to put their capital to work through M&A. In the 11 months ending November 2012, there were a total of 7,585 transactions representing $705 billion in disclosed deal value. In October 2012 alone, deal value spiked to a 14-month high, reaching $96 billion and with 754 deals, October was the most active month since August 2011.  
 
In terms of deal size – and with the absence of "transformative" mega deals – middle market deals have been the "silver lining" for deal activity, PwC says, accounting for 98 percent through November in 2012. PwC expects this trend in middle market deals to continue in 2013.
 
"Both corporate and private equity players are thinking about transactions to expand market share, build brands and fuel their long-term strategic plans. In today’s environment, companies must be agile to act with discipline, speed and unbiased thoroughness to execute when a good potential acquisition comes to market," said John Potter, Deals partner at PwC. "A recent poll during our M&A integration webcast found that 89 percent of executives expect to see similar or increased M&A activity over the next year, with 45 percent expected to plan a deal within the next six months. Deal making, whether by acquisition or divestiture, is very much at the top of the agenda for those pursuing new growth opportunities in 2013."
 
In light of available cash and growth strategies, a desire to get deals done has heightened the competition among corporate and private equity buyers.  According to PwC, more bidders are taking a longer look at a given target over the past 12 months.
 
Divestitures
Divestitures accounted for 43 percent of total disclosed deal value and 30 percent of deals overall, the highest level since 2005, and should remain a key driver for deal making in the year ahead as companies seek to unlock value in assets.  Those that are currently looking to divest assets have stepped up the sell side diligence process to showcase potential value for quality assets for potential buyers.
 
"Successful divestitures in today’s marketplace require a sharp focus and rationale around the opportunities that an asset has to grow. An accurate portrayal of long-term deal value for an asset helps ensure that a buyer and a seller can meet at a reasonable price and unlock value and opportunity for the future of both companies involved in the deal," according to Ron Chopoorian, PwC’s U.S. Divestitures leader. "With preparedness and rigor around the sell side process serving as essential components for successful divestitures, we are seeing auctions become broader and participants ‘staying in play’ for longer periods of time."
 
Private Equity
With a total of 1,334 transactions and $128 billion in value, private equity deals accounted for 18 percent of total deal value, indicating that while corporates continue to drive overall activity, private equity’s involvement in the marketplace remains very active. With roughly $1 trillion in dry powder waiting to be deployed, sophisticated private equity buyers are scenario planning for every deal outcome to generate the best returns for their investments.
 
According to PwC, private equity continues to prepare for multiple exit options, including refinancing debt, recapitalizations, IPOs and sales to strategic buyers to take advantage of shifting windows of opportunity. On the buy side, private equity remains a very active deal participant, especially in the middle market and with divested corporate assets. The increased availability of high yield debt is a main driver fueling private equity activity in the U.S. Marketplace.
 
 

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