High fourth-quarter mergers and acquisitions activity in 2015 has many analysts expecting a robust year for M&A in 2016. Globally, the industrial sectors that are showing the most activity are:
- Technology, media and telecoms
- Pharmaceuticals, med, and biotech
- Energy, mining, and utilities
Last year, M&A hit a record $3.8 trillion worldwide. Of course, a large percentage of that came from the mergers or acquisitions of industry giants like Pfizer Inc. and Allergan Plc, but small and mid-level business owners have also been busy making deals. Despite political and financial instabilities in 2015, buyers were optimistic about their abilities to find good deals and forged ahead in making them. Recent surveys have revealed that buyers and sellers both feel reasonably good about the market and the their place in it, although over time sellers have gotten more optimistic that buyers could be located for their businesses and that they would be able to sell them at a good price.
Why are experts predicting that 2016 will follow this pattern? Mainly for three reasons: the economy is getting stronger, interest rates are still low, and U.S. tax laws favor mergers and acquisitions. Business deals get done when there is capital and confidence, essentially.
The Commerce Department today reported that economic activity was healthier than previously thought in the last quarter of 2015 and that spending in January was up .5 percent – the highest since last May. Fourth quarter GDP grew 1 percent in 2015, with steady job gains and faster wage growth.
The action the Federal Reserve will take regarding interest rates remains to be seen as inflation rose by 1.3 percent in the year ending in January. While the Fed raised a key rate a quarter point in December, interest rates had been near zero and still remain very low. Buyers who will require financing to complete a deal shouldn’t find anything to worry about there. Lenders are still open to extending credit to buyers with good financials.
Confidence is a trickier thing to calculate than capital, but the as the worst years of the recession fade into the background, buyers and sellers are beginning to trust more in the idea that they will be able to sell their businesses and that the market won’t shut down suddenly and unexpectedly. Given this, it’s merely a matter of calculating when is the best time to buy or sell relative to their own goals, prospects, and financials.
Calder Capital is always ready to begin a discussion about the business market as it exists now and how your business goals might best fit into it. For your free consultation, call us today.