This year is looking to be an even better year for mergers and acquisitions than 2014, the best year since the financial crisis. One factor is cheap capital.
“Companies are eyeing the Fed, wondering when it’s going raise interest rates – likely by the end of this year,” observed David A. Brown, partner in Alston & Bird’s Corporate & Business Transactions Group. “So they’re trying to get deals done now.”
This despite investors’ preference for dividends and buybacks, but increasingly “shareholders are willing to accept and even advocating that strategic growth is a viable way to spend that cash,” said Brown.
With the economy’s seesawing performance, “organic growth can be hard to come by,” Brown added. Dealmaking by strategic buyers “was bubbling up in 2014,” he said, “and the tidal wave seems to have hit in the first and second quarters of 2015.”
“It’s either fish or cut bait with respect to some of these deals.”
The second quarter has been particularly kind to the oil and gas industry, said Brown, “as oil prices settled down and companies gained more visibility into the market.”
Private-equity firms have ceded big deals to strategic buyers in 2015, but Brown noted that private-equity firms have turned into sellers or have taken portfolio companies public.
“You’ve seen a sort of rebalancing of the overall private-equity model,” he said. “There’s still a lot of confidence in private equity, a lot of desire to do deals.”
High levels of dry powder and access to cheap capital continue to favor private-equity buyers, Brown said.
Brown expects M&A activity to remain vibrant in the second half.
“I see no signs of a slowdown,” he said. “I believe the rest of 2015 will continue to be strong, as multiple sectors are contributing to the M&A boom.”
What could go wrong? Either a drop in the stock market or a higher-than-expected rise in interest rates could have an impact, Brown predicted.
“CEO and investor confidence appears to be fairly strong, as evidenced by the market,” he said. “If confidence starts to ebb significantly, or if the market starts to slide, then M&A activity may slow down.”