PRINT THIS PAGE DealMakers survey11/04/2007. Source: Association for Corporate Growth, Thomson Financial. 
Merger professionals confidence levels are running at record levels, says the ACG and Thomson Financial, while private equity, easy debt, and global growth looks set to fuel deals across 2007. A record $3.8 trillion year in global mergers and acquisitions has led dealmakers to call the current M&A environment good or excellent (93%), and nearly half (49%) expect further merger acceleration in the first half of 2007, according to a new survey by Association for Corporate Growth (ACG) and Thomson Financial.
Forty-one percent of survey respondents expect M&A activity to remain the same, and only 9 percent expect the pace to slow.
“Cash, confidence, competition and cross-border deals drove record M&A activity in 2006,” said Daniel A. Varroney, President and CEO of the Association for Corporate Growth. “None of these are in short supply as we enter the new year. We expect the global M&A machine to continue to fire on all cylinders in the first half of 2007.”
The 2006 merger worldwide total of $3.8 trillion was 38 percent higher than last year’s total, and surpassed the previous 2000 record of $3.4 trillion, according to Thomson Financial. The number of large transactions also beat the 2000 record, with 55 transactions of more than $10 billion in 2006 versus 39 in 2000. In the United States, half of the top 10 deals were done by private equity firms, which have been playing an increasingly active role fueled by record sized funds and easy access to debt financing.
M&A Drivers
Survey respondents say the primary driver of M&A activity in the next six months will be:
1. Hefty capital reserves of some acquirers (47%)
2. Good multiples for companies being acquired (17%)
3. Improved economy (10%)
Sellers Market
When asked which side of the transaction is in the best position today, M&A pros overwhelmingly said:
1. Sellers (75%)
2. Buyers (10%)
Hot M&A Sectors
Dealmakers anticipate the following sectors experiencing the most merger activity in the first half of 2007:
1. Technology (22%)
2. Healthcare, Life Sciences (17%)
3. Manufacturing and Distribution (16%)
M&A Objectives
Survey respondents say the primary objective of mergers and acquisitions is to:
1. Increase revenues and profitability (53%)
2. Grow market share (29%)
3. Gain technology (4%)
Cross-Border M&A
Nearly half (49%) of dealmakers polled expect to be involved in an international cross-border deal during the first half of 2007, and 43% say cross-border deals are becoming more important to their firms. Geographically, they anticipate these deals will be with:
1. Western Europe (53%)
2. China (35%)
3. Canada (35%)
In 2006, European deals increased 39% to $1.4 trillion, even more than the 36% increase to $1.6 trillion in the United States, close to the $1.7 trillion record set in 2000.
“Dealmaking in Western Europe is always a couple of years behind the United States,” says ACG’s Varroney. “As European economies gain strength and as increased capital flows to Europe in search of new investment opportunities, European M&A is poised to take off.”
Private Equity
Liquidity Events
Private equity professionals say the greatest opportunity for liquidity events for their portfolio companies in the next six months are:
1. Sale to strategic buyer (50%)
2. Sale to financial buyer (29%)
3. Merger (9%)
Greatest Threat
Private equity professionals say the greatest threat they face is:
1. Lower returns (31%)
2. Competition with other private equity firms (25%)
3. Competition with hedge funds (11%)
Proprietary Deal Flow
Most deals are competitive. Survey respondents said of their deals:
Less than half are proprietary (67%)
More than half are proprietary (32%)
“It’s an extremely competitive marketplace right now,” said ACG’s Varroney. “Global competition is driving up deal prices, making it a great time to sell a company. The private equity firms have large funds to put to work, many corporations have large cash coffers and growth ambitions, and now hedge funds are getting increasingly involved. This is driving up acquisition prices. For funds, competition could put pressure on returns, and for corporations, it’s making acquisitions more difficult as many can’t or won’t act as quickly as private equity firms.”
Acceptable IRR
Private equity professionals say the lowest internal rate of return they will accept when bidding on a transaction is:
5-10% (3%)
11-15% (13%)
16-20% (25%)
21-25% (32%)
26-30% (14%)
31-35% (7%)
36%+ (5%)
Debt Market
The days of easy financing may be ending. According to survey participants, one year from the now the debt market will be:
1. Worse (46%)
2. The Same (35%)
3. Better (19%)
Organic Growth
Hot Growth Sectors
Survey respondents say the sectors that will experience the most organic growth are:
1. Healthcare, Life Sciences (35%)
2. Technology (17%)
3. Energy (15%)
Potential Growth Impediments
Executives caution, however, that the following factors could slow growth:
1. Interest Rates (20%)
2. Energy Costs (19%)
3. Terrorism/War (19%)
4. Labor Costs (18%)
5. Inflation (12%)
The ACG/Thomson DealMakers Survey polled 1,230 investment bankers, private equity professionals, corporate development professionals, as well as lawyers, accountants and other service providers involved in the deal economy in December 2006.
Founded in 1954, the Association for Corporate Growth (ACG) is a global association for professionals involved in corporate growth, corporate development, and mergers and acquisitions. Today ACG stands at nearly 11,000 members from corporations, private equity, finance, and professional service firms representing Fortune 500, Fortune 1000, FTSE 100, and mid-market companies in 53 chapters in North America and Europe. For more information, please visit www.ACG.org.
Thomson Financial is a provider of information and technology solutions to the worldwide financial community. Through the widest range of products and services in the industry, Thomson Financial helps clients in more than 70 countries make better decisions, be more productive and achieve superior results.
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