May 3, 2016, 7:37 PM ETPanel, Conference Presentation

The M&A Outlook

Panelists unanimously forecast a "strong" 2016 M&A year, though none expect it to surpass the record volume of 2015.
The EY Capital Conference Barometer predicts 2016 deal volume with a 90%+ historical correlation to actual market performance.
Strategic activity is expected to accelerate in the second half of 2016 as Q1/Q2 financing conditions normalize.
75% of surveyed companies intend to pursue globalization, with 50% planning an acquisition within the next 12 months.
A shift is noted from pure M&A toward "M-A-N-A" (Mergers, Acquisitions, and Alliances) to preserve optionality amid digital disruption.

Cross-border M&A currently accounts for 45% of total volume, a significant increase from the historical average of 30%.
China is driving 25% of all cross-border deals, primarily outbound flows into Europe and the US.
Non-US activism campaigns have risen approximately 30% globally, contrasting with flat activity in the US.
Hostile takeover attempts increased by roughly 70% year-over-year, with a similar 40% rise noted by Deutsche Bank.
Emerging markets and specific buyout segments remain "frothy" or quiet due to valuation misalignments and financing constraints.

Activism is characterized as a "permanent feature" of the US boardroom rather than a cyclical spike, though growth rates are leveling off due to exhausted "low-hanging fruit."
Activist hedge funds manage approximately $130 billion in investable assets, with over 550 campaigns executed last year.
Activist performance has underperformed the broader market by over 20% in the last 12 months, challenging the narrative of consistent alpha generation.
A "reluctivist" trend is emerging where traditional institutional investors (e.g., T. Rowe Price, CalPERS) act as vocal shareholders alongside dedicated activists.
Approximately 40% of companies targeted by activists eventually engage in an M&A transaction.
Global expansion of activism is expected in Europe, Japan, and China, though the legal and structural forms will differ from US models.

Private equity firms hold roughly $675 billion to $700 billion in "dry powder" needing deployment.
Financial sponsors are monetizing assets at a 3-to-1 rate relative to new acquisitions, indicating a net seller stance.
Traditional LBOs represent only 5% of total market volume, while financial sponsors account for 25% of broader market activity.
The Federal Reserve's financing caps (roughly six times EBITDA) are tempering the buyout market, particularly in slower-growth sectors.
A "dead zone" exists for slow-to-no-growth businesses (historically 8x–9x multiples) as leverage economics no longer support traditional returns.
More than 40% equity is currently required in high-multiple deals (>10x), complicating returns in a low-growth environment.

Tech M&A is driven by "panic" regarding rapid technology cycles, leading to strategic alliances and minority investments rather than sole-control bets.
Five major tech companies hold approximately $500 billion in offshore cash, providing immense capacity for acquisitions.
Non-tech companies are doubling or tripling their investment in tech firms over the last five years to combat sector disruption.
Jennifer Nason notes that while tech will be active, lower-growth sectors (consumer products, industrials, life sciences) may see higher consolidation.
Distress in the oil and gas sector has not materialized as broadly as anticipated; capital markets have largely bailed out major integrated companies.
Major tech giants (Apple, Microsoft, IBM) face flat or declining organic growth, creating pressure to acquire assets to drive top-line expansion.

Antitrust scrutiny is intensifying globally, contributing to the cancellation of major transactions like Halliburton-Baker Hughes and Electrolux-GE Appliances.
CFIUS reviews of Chinese-related businesses are increasing, creating uncertainty for cross-border deals.
Regulatory uncertainty from the 2016 US election and potential Brexit is viewed as a distraction rather than a deal-breaker by most panelists.
Healthcare faces specific risks regarding potential changes in reimbursement protocols.
The SEC registration requirements for sponsors are viewed as a nuisance but ultimately beneficial for industry discipline.

The IPO market has been stagnant, with the pipeline tilted heavily toward sell-side transactions in the past 12 months.
Only companies with proven positive cash flow are currently considered viable for immediate IPOs.
Approximately 60–70 tech companies remain in the IPO backlog, though success depends on recalibrating valuation expectations.
Private Equity LPs show no immediate urgency for exits; the industry has historically achieved a 3-to-1 distribution-to-draw ratio.
Public offerings are increasingly viewed by PE firms as a temporary milestone to facilitate future sales rather than a final exit.

Paul Stefanik: Highlights regional bank consolidation in the US as an under-discussed opportunity due to fragmentation and cost-saving potential.
John Donoghue: Predicts continued focus on long-term compounding in the buyout space, with limited activity in pharma due to inversion tax changes.
Robin Rankin: Warns that a surge in "adjacent" (non-strategic) deals could signal the market has peaked, necessitating caution.
Steve Kruskis: Identifies China as the dominant thematic driver for both outbound deals and domestic SOE reorganization.
Jennifer Nason: Cites "disruption" as the primary catalyst, predicting a mix of successful asset acquisition and failed bets as companies race to position for technological shifts.