Conference Presentation, Panel
Boom or Bust: Opportunities and Risk in M&A
Milken InstituteStuart Cable, Ray McGuire, Steve Kruskos, Peter Schoenfeld, Leon Wagner, David Solomon
- Markets are positioned in a boom era driven by a mindset shift toward inorganic growth and acquisitions, with confidence levels remaining high despite a slow-growth environment.
- M&A volume is expected to increase significantly over the next 12 months, with 56% of surveyed executives planning deals, representing a sharp rise from the typical 30–40% average and indicating substantial pent-up demand.
- Deal drivers include the need to innovate as sectors converge, the desire to capitalize on geographic and currency divergences, and the opportunity to grow beyond organic bases, with cash remaining the dominant transaction currency.
- Private equity activity is characterized by a corporate-led strategic environment rather than leveraged buyouts, with firms facing capital deployment challenges and valuation issues that may affect their cost-of-capital advantage.
- European markets are projected to become significantly more active over the next 12 months, potentially surpassing US activity levels, fueled by weaker currency expectations and relaxed regulatory stances in the TMT sector.
- Specific sector opportunities include healthcare, which has seen a 100% activity increase, oil and gas distress combinations, and increased activity in data technologies and metals and mining.
- Activism is anticipated to rise in intensity, particularly in Europe, leading to more proactive board behaviors, spin-offs, and potentially more hostile bids as shareholders seek to influence performance.
- The mid-market is expected to serve as the primary engine for deal volume, accounting for approximately 80% of action, while mega deals continue to drive market momentum.
- Quantitative easing is expected to persist for many years, and significant Fed rate hikes are not anticipated to materialize in the near term, which supports the continuation of the current M&A environment.
- Risks to the outlook include potential geopolitical events, a major market correction that could alter pricing, and the possibility of monetary policy shifts large enough to disturb boardroom confidence.
- Regulatory environments are viewed as non-permanent, likely to fluctuate over time, with companies and industries pushing boundaries to achieve transformative deals.
- Market volumes are projected to trend back toward historical norms, such as the 6.5% of market cap average seen in 2014, suggesting further growth room remains for the industry.