December 13, 2010

How Accurate was the PwC Transaction Services 2010 M&A Forecast?

Last week, PricewaterhouseCoopers Transaction Services outlook for the coming year. How did the PwC survey fare this past year – according to their press release:

Strategic Deals and ‘mergers of productivity’ will drive activity in 2010.
Correct. In 2010, companies focused on synergies to enhance productivity and cost-savings. For 2011, PwC contends that a different focus on ‘productivity’ will be a theme as companies look to bolster revenue growth, versus focus on synergies.

We expect to see more IPOs coming to market from private equity.
Correct. Private equity (financial sponsor) backed offerings led the IPO market recovery in 2010, with a total of 115 offerings raising $15.9 billion in the first nine months of 2010, according to PwC’s IPO Watch. “The climate for private equity-backed IPOs in 2010 was robust and we expect this trend to continue,” said PwC’s Hartnett, “however the IPO market is not the only avenue for PE to realize investments, with sales to strategics and dividends also becoming attractive alternatives.”

Financing will be the dominant challenge contributing to the instability of middle market deals.
Partially correct. Debt markets improved in the second half of 2010 as seen in the return of the bank loan market and revival of leveraged finance.

Divestitures will be a factor in fueling deals.
Correct. Divestitures, e.g. carve-outs, were a factor in driving activity, principally in the middle market, as both seller’s valuations and buyer’s access to financing improved. This trend was highlighted by an increase in total divestiture value to $264 billion for year to date November 2010, compared with $241 billion for calendar year 2009, and an increase in divestiture deal value as a percentage of total M&A from 33 percent to 39 percent, an overall increase of 6 percent.

Consumer products, Technology, Energy, Financial Services, Automotive, Healthcare, and Entertainment & Media industry sectors will present opportunities for consolidation.
Partially correct. Financial Services and Healthcare M&A activity was not as strong as expected with a sizeable decrease in both deal value and volume, year on year. Automotive deal activity remained relatively flat in 2010, as companies continued to strengthen their balance sheets before re-entering the deal market.

*The accuracy of the PwC Transaction Services previous forecast does not guarantee future accuracy.