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Deloitte: Strong M&A Activity Continuing

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Deloitte: Strong M&A Activity Continuing

Survey results reveal significant uptick in transformational transactions, divestitures and data analytics from 2014 report.

According to a survey by professional services firm Deloitte, an overwhelming majority of 2,500 executives at U.S. corporations and private equity firms polled expect the robust pace of mergers and acquisitions to extend — or even accelerate — in 2015.

Last year demonstrated an M&A revival, as 9,802 U.S. deals with an aggregate value of more than $1.5 trillion were reported. The start of 2015 is continuing the momentum, with $414.7 billion worth of U.S. acquisitions announced in the first quarter, its largest first quarter since 2000, according to Fortune. True to this trend, 85% of corporate executives and 94% of private equity respondents surveyed expect the pace of M&A activity to sustain or ramp up from 2014 levels in the next 12 months. That's consistent with expectations a year ago, when 84% of corporate respondents and 89% of private equity executives said they expected activity to remain the same or accelerate.

"We are seeing very bullish M&A activity in a variety of sectors."

"We are seeing very bullish M&A activity in a variety of sectors," said Tom McGee, vice chairman and national managing partner, Mergers & Acquisitions Services, Deloitte LLP. "For companies large and small, public and private, the availability of inexpensive financing, surging equity markets and an urgency to deliver growth has positioned the U.S. potentially to hit pre-recession M&A activity levels in 2015."

Increased Transformational Focus
Close to 1 in 4 corporate respondents (24%) indicate they plan to seek out major transformational transactions, an increase of 5% from last year's survey. On the private equity side, over half the respondents (55%) expect enterprise value for acquisitions to be at least $500 million.

Divestitures Seen Increasing
Expectations remain sky-high for increased divestments of private equity portfolio companies, with about three quarters of private equity firm respondents, up from two-thirds last year, anticipating an accelerated level of exits within the next 12 months. On the corporate side, there also are expectations for greater divestiture activity this year. Almost 4 in 10 company respondents report they anticipate shedding a business in 2015, up about a quarter from 2014's responses. This trend is being fueled mainly by a greater strategic focus on core assets and reactions to marketplace changes.

Data Analytics Use Poised to Grow
More companies and private equity firms are turning to technology-driven data analytics to analyze M&A transactions. On the corporate side, two-thirds of respondents said they deploy data analytics in at least select areas of their deal analysis, up from 58% in 2014. On the private equity side, the use of data analytics also increased in the past year, and is even more ubiquitous. More than 75% of private equity respondents say they use these tools in at least select areas, up from about 70% a year earlier.

Persisting Strength in Multiple Sectors and Geographies
From a sector perspective, technology was tipped as the top industry (29%) for the second consecutive year. Despite a decrease in oil prices, energy, specifically the oil and gas subsector, surged to second in the ranks (25%), with health care plans and providers in third position (20%).

Overseas expansion continues to be a focus with a greater number of corporate and private equity respondents saying in the 2015 survey that they expect to invest or acquire businesses in foreign markets, up from 58% and 73%, respectively, last year. The top three overseas targets for corporate executives are: China (24%), Canada (23%), and the U.K. (19%). While China remains the top foreign target, the reported percentage is a sharp decline from 2014 when 33% cited it as the top foreign destination. Among private equity leaders, the top three overseas markets are: Canada (32%), the U.K. (30%), and China (27%). 

Deals Continue to Fall Short of Expected Return 
Despite expectations for another blockbuster year, almost 90% of respondents said completed transactions have fallen short of generating expected return on investment, the same as last year. On the private equity side, 96% of respondents indicated that some portion of their deals fell short of targeted returns.

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