In , some industries posted increases in deal value, owing to outlier effects from a few large deals.
However, some alarming trends persisted. See Exhibit 2. The rebound in deal value was propelled largely by megadeal activity in North America, especially in the second quarter. Among the 21 megadeals announced in the first half of , the following were the top five in value:.
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Each of these regions saw relative declines in deal volume. The first half of brought relatively few announced cross-border megadeals, possibly because of increased trade tensions and other geopolitical factors. Most industries experienced a decline in deal value compared with the first half of However, two industries stood out with double-digit increases partly driven by larger deals on average : energy and power Deal value also increased in high tech 2. All industries saw a decline in deal volume compared with the first half of In terms of valuation, deal multiples—enterprise value divided by EBITDA—declined slightly in , to a median of In the first half of , multiples declined further to 13x.
That is lower than the all-time high of 15x set in but still above the long-term average of 12x.
The continued decline in the first half of was driven, in part, by decreasing multiples in cyclical industries, such as industrial companies and consumer-related businesses. However, the average multiple paid for high-tech companies increased significantly. Acquisition premiums, on average, held steady In the first half of , they rose to See Exhibit 3. The past ten years have been relatively good times for dealmakers. For previous time periods, research and studies including our own have typically found that significantly less than half of deals achieve such success.
From through , however, cumulative abnormal returns CARs of both targets and acquirers were positive, indicating that investors were placing their bets on dealmakers. In what may be a sign of more difficult times ahead for acquirers, saw a reversal of the recent trend. Although it is well above the historical since average of —1. Targets saw their CARs dip slightly to The shift in investor sentiment toward acquirers is attributable to several factors.
But such positive reactions are no longer the norm. Although some shareholders especially the activist investor Starboard Value wanted to stop the deal, it ultimately received shareholder approval.
Mergers & Acquisitions | Financial Times
The market is being shaped by trends that influence both the sell side and the buy side, as well as by topics affecting the broader business environment. Corporate divestitures and spinoffs, as well as private equity exits, support supply. Divestitures by corporations and private equity PE firms are on the rise, as these organizations seek to cash in on high valuations or sell assets that are at risk of underperforming before the next recession. Although the volume of corporate divestitures fell slightly in , total deal value rebounded to near the recent highs reached in and The need to address antitrust concerns in the merger-approval process, especially for megadeals, has also fueled sell-side activity.
The volume and value of PE exits are also slightly off their peaks of , though still at moderate to high levels. High cash levels drive demand. Elevated levels of cash holdings, for both corporations and PE firms, will continue to support dealmaking in the near term. See Exhibit 5. In addition, the interest rate environment is still favorable for dealmaking.
Central banks plan on keeping rates low for an extended period and are even considering new rounds of rate reductions. There are nuances, however. While yields in Europe and Japan are still close to historic lows, yields for corporate bonds have recovered a bit in response to quantitative tightening in the US last year.
However, it remains to be seen how the July interest rate cut by the US Federal Reserve will affect capital markets in the coming months. Industry convergence and the rise of ecosystems encourage unconventional deals. The absolute number of venture capital VC investments by corporate investors and the relative share in all VC investments by volume has doubled since See Exhibit 6. Increasingly, the objective of deals is not to take control of a company but rather to gain access to specific capabilities, talent, or technology or to establish partnerships.
Two related developments are promoting the shift in emphasis. First, the increasing prevalence of tech-enabled business models is blurring the boundaries between industries and leading to the convergence of previously distinct business sectors. For example, the distinction between mobility companies and technology companies has blurred, as ride-hailing apps such as Uber, Lyft, and Didi and developers of self-driving vehicles such as Waymo, a subsidiary of Alphabet enter the sphere of automakers and other traditional mobility players.
Second, as companies increasingly integrate technology into their products and services, complex ecosystems are emerging throughout the business landscape and across industries.
To bring together all the required elements of technology-enabled offerings, companies must work with a far wider range of partners than in the past. Traditional bilateral partnerships within a single industry are giving way to multilateral cross-industry partnerships, potentially involving dozens of players.
Because such ecosystems are fluid and dynamic, and not perfectly controllable, dealmakers will need to utilize a wider range of deal types and consider different depths of integration. These two developments are giving rise to more cross-industry transactions. In this context, nontraditional deals—including joint ventures and alliances, corporate venture capital investments, and the purchase of minority stakes—are gaining importance.
Stout has significant experience in the valuation of privately owned businesses across a wide range of industries. We perform an extensive analysis of the business as well as evaluate industry trends and various other factors in order to inform our clients as to the likely range of value they can expect. Stout devotes time and resources to understand the intricacies of the business and industry. This effort is critical to identifying the factors that need to be emphasized to particular buyers and anticipating potential areas of strength and vulnerability that may require support or further analysis.
In conjunction with our review of the business, Stout prepares a thorough information memorandum that presents the business in a compelling manner. We access extensive resources and proprietary Stout databases in order to identify and qualify the most likely strategic and financial buyers for any given situation. Our professionals present a clear view of the full range of strategic alternatives.
Contact Us. Valuation Stout has significant experience in the valuation of privately owned businesses across a wide range of industries.
In-Depth Business Review Stout devotes time and resources to understand the intricacies of the business and industry. Development of Marketing Documents In conjunction with our review of the business, Stout prepares a thorough information memorandum that presents the business in a compelling manner.