2017 M&A Outlook

As the first quarter of 2017 marches toward a close the M&A market is poised for strong activity during the three quarters ahead. The new administration has made it clear that business and spurring the economy and jobs is a priority, which should bode well for business owners seeking an exit in the short term.

Trump has also pledged to invest $1 trillion in infrastructure spending, which should be a boon to the sector as a whole and tangentially M&A activity.

A recent survey of 600 middle market business owners performed by Citizens Bank illustrated a sharp uptick in the number of business owners strongly considering an exit or actively involved in the process of exiting at the moment.

That sentiment is driven by an air of optimism in the economy, consumer confidence and a healthy contingent of financial and strategic buyers with significant money to spend.

By most accounts there is still more than a trillion dollars of dry powder on corporate balance sheets and private equity buyers are always looking to deploy capital into good growing companies. According to financial data company FactSet, S&P 500 businesses held more than $1.5 trillion in cash in the third quarter of 2016, a 7.6 percent year-over-year increase.

Below we take a quick look at some factors affecting M&A in 2017.


The Incremental Increase of Debt

As the Federal Reserve hints at, and actually increases, interest rates ever so slightly buyers that are looking to put significant leverage into transactions want to move as quickly as possible. This is especially true with private equity buyers that rely heavily on the leveraged buyout model.

A rise in interest rates will also impact sellers. Higher interest rates make it more costly to borrow money resulting in buyers paying less for companies.


Technology and Energy Drive Activity and Valuation

Relaxed regulations in the oil and gas space under the Trump administration has the sector rebounding after a down period over the past few years. This should lead to a sharp rise in M&A activity. Larger strategics are on the hunt to increase market share and profitability; employing M&A in a space where values have been down could be a great way to accomplish goals.

Last year, 2016, the technology sector saw more than $500 billion worth of deal value, the second largest amount since the early 2000s and, hopefully, a harbinger of things to come.  In the technology sector moving forward the Unicorn phase of billion dollar startups may be settling back to earth but larger players still see M&A as the fastest way to grow sales and keep a leg up on the competition. This is especially true with companies like Facebook, Apple and Google that are constantly fighting to maintain supremacy.


Political Climate

The fundamentals seem in place for a strong finish as far as M&A activity is concerned but political instability is always a wildcard. From the investigations surrounding the Trump administration to political shifts across Europe, certainty is one thing you can never be certain of. However, as long as there are willing sellers, there always willing buyers.

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