US companies are engaging in more mergers and acquisitions (M&As) rather than divesting themselves of non-core assets, as was the dominant practice during the economic downturn, according to a recent survey by professional services firm KPMG. Nearly two-thirds (63%) of the survey's respondents stated that they anticipate their US companies or clients to initiate at least one acquisition in 2014, and this activity is expected to remain solid throughout the year.
“With favourable conditions in place for increased M&A activity, such as significant cash on corporate balance sheets, more confidence in the overall economy, and continued low interest rates, expanding core business functions through acquisitions is an appealing strategy for organisations,” said Dan Tiemann, KPMG’s transactions and restructuring lead for the Americas.
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Among the 145 c-level executives surveyed, nearly three-quarters anticipate that their company will make an acquisition in 2014, compared to nearly half in 2013. Activity is expected to be most concentrated in the technology, media and telecommunications sectors, according to the survey.
In terms of the motives behind the increase in M&A, 25% of respondents see M&A appetite buoyed by large cash reserves, 17% by opportunities in emerging markets, 16% by improved customer confidence and 16% availability of favorable credit terms.
While the regulatory environment remains one of the biggest challenges facing private equity firms, these companies are in a growth mode, according to KPMG. “Firms are looking to expand into new markets and lines of business,” said Marc Moyers, national sector leader of private equity for KPMG. “Given the amount of capital available and dry powder that must be spent, 2014 could be a very active year.”
What could spook the markets? Respondents say that a lack of suitable opportunities (cited by 32% of respondents), recessionary fears and the slow growth environment (29%) and regulatory considerations (18%). More than half of respondents said it is too early to tell if interest rates will impact M&A, with 30% stating that it will not have a meaningful effect on deals.