At Employment Technology Solutions, we have been very busy at the close of 2013 and into 2014 assisting our clients with Employment Tax Compliance and Tax Optimization issues related to their Mergers & Acquisitions.
2013 M&A Performance Failed to Realize its Promise
That being said, although there were bullish predictions that 2013 would be a good year for Mergers & Acquisitions, the year-end numbers show deal activity remained flat, with volume up somewhat -in particular, in the U.S.- due to a few blockbuster deals. Dealogic’s recent recapshowed Global M&A volume reached $2.91 Trillion in 2013 (up 9% from 2012) and the highest annual total since 2008. In contrast, deal activity was down 15% to 37,212 deals, the lowest total since 2005. Despite the overall increase, Q4 2013 volume ($766 Billion) was down 14% from the same quarter last year, and was the lowest Q4 total since 2011. For US-targeted M&A, Dealogic’s report showed volume reached $1.18 Trillion in 2013, the highest annual total since 2007, and up 20% on 2012.
Even though 2013 was not as strong for Global M&A activity as many had predicted, the consensus from late year 2013 articles and surveys by KPMG, Mergers & Acquisitions, PwC, E&Y, and Thomson Reuters is that 2014 is poised for an increase in Merger & Acquisition activity.
Forget 2013; Predictions Stubbornly Optimistic for 2014
KPMG’s recent 2014 M&A Outlook Survey announces “M&A Expected to Rebound in 2014” and PwC declares “Positive M&A Momentum in Second Half of 2013 to Carry into 2014.” Ernst & Young has also (reservedly) jumped on the pro-deal outlook, proclaiming “Unprecedented third year fall sees M&A at lowest level for eight years but green shoots sprouting for overdue recovery in 2014,” and that “there is a real prospect of a deal revival in 2014.” Continuing the optimistic trend, based upon their survey of dealmakers in the fourth quarter last year, Mergers & Acquisitions Magazine headlined their article “Dealmakers Predict 2014 Will Be a Great Year for Middle-Market M&A,” concluding that “early-stage deal flow in the middle market is accelerating, and dealmakers expect the momentum to continue in 2014.”
2014 Merger & Acquisitions Volume: Off to a Strong Start!
Its very early in the year, but the consensus is that Mergers and Acquisitions in 2014 are so far trending upwards. According to a recent article by USA TODAY markets reporter Matt Krantz, Dealogic’s data shows global dealmaking so far this year has reached $148.4 billion, the strongest start to a year for mergers and acquisitions since $217 billion in 2000.
Part of the reason behind the more bullish outlook on 2014 are the favorable conditions in place for M&A activity. For corporate acquirers, many have significant cash on their balance sheets, have greater confidence in the economy, and have access to continued low interest rates that make growth through strategic acquisitions a favorable strategy. Similar conditions exist for Private Equity buyers who are also expected to be more active due to continued access to low interest capital and available “dry powder” from existing funds ready to be deployed on new transactions.
In a recent KPMG survey of over 1,000 M&A professionals, investors and advisors, 63% anticipate that their U.S. companies or clients will initiate at least one acquisition in 2014. Among the 145 C-level executives surveyed, nearly three-quarters anticipate their company will make an acquisition in 2014, compared to approximately half in 2013. Ernst & Young’s research also supports a more active 2014. They express that “more than a third of global corporates plan an acquisition next year – a significant increase in appetite compared to this time last year.”
Not So Fast! Before You Toast the Turning M&A Tide
Economic trends change quickly, and despite the post-recession predictions made in recent years of an impending “M&A boom,” in reality M&A’s recovery has been inconsistent over time, place, and vertical. As a matter of fact, just while writing this post, Dan Primack wrote on his M&A blog Term Sheet (hosted by Fortune & CNN Money) that despite the “improving macro-economic conditions, generous credit and staggering corporate cash hordes” that informed the persistent M&A boom predictions, he doesn’t see the boom coming to fruition due to mismatch between buyer and seller value perceptions. Specifically, even price-conscious buyers will hesitate to jump on prices that are down from a month ago, because they could easily drop even lower tomorrow. Further, “it’s hard to convince a board to sell at $50 per share when their stock was at $55 per share just a few weeks earlier.” Speaking in light of the stock market tumble (on January 24th, 2014), Primack thinks the economic uncertainty could have a ripple impact on M&A, counteracting the underlying factors that favor a predicted boom in transactions.
Frankly, predicting M&A trends have been a bit of a crap shoot in the past couple of years; even ETS blog posts covering other outlets’ research and coverage have been all over the place (see here, here, and here). At times, different outlets have interpreted the same retrospective deal data in entirely opposite ways (“it was the best of times……it was the worst of times”). It would seem there’s a bit of over-eagerness for M&A to resume at a full clip, because people perceive it will indicate the economy’s return to normalcy. But in fact, that may be putting the egg before the chicken. As Primack also alluded to, the economy may have to further stabilize “and find that evasive equilibrium where both buyers and sellers want to do business” before we’ll see a true return of the M&A deal craze. In the meantime, deals will of course still happen. And its doubtful the deal-predictors will stop jumping the gun at the risk of not being first to prophesize the new coming of M&A deal madness.
Trends aside, you may still have a past or current M&A transaction on your plate. If your organization has undergone M&A, change of entity, or reorganization in the past few years, don’t miss ETS’ M&A resources for employment tax best practices. Download the slides from our recent HR.com webcast here:
If employees are part of your M&A deal, then you will want to be on top of the employment tax aspects of your transaction for compliance and material tax savings. Here are some additional ETS resources for M&A:
- Download our top 15 tips for employers who have M&A, restructuring, or re-organizational activity.
- M&A Deal Update for 2012 (also includes Best Employment Tax Practices for M&A)
Has your organization had M&A, restructuring, or reorganizational activity in the past few years (or one in process now)?
Take advantage of ETS’ expert review of current or historical (going back three years within statute) M&A activity in order to maximize savings and minimize compliance. It is a no-obligation opportunity to ensure all your t’s are crossed and i’s are dotted. If we see any red flags or missed material savings opportunities, we’ll let you know; and if we don’t find anything, you’ll be able to rest easier with the additional reassurance that you’re doing things right.
KPMG‘s 2014 M&A Outlook Survey, accessed at http://www.kpmgsurvey-ma.com/
KPMG‘s Press Release “Strong M&A Market Expected in 2014, KPMG Survey,” accessed at http://www.kpmg.com/us/en/issuesandinsights/articlespublications/press-releases/pages/strong-ma-market-expected-in-2014.aspx
PwC‘s Press Release “Positive M&A Momentum in Second Half of 2013 to Carry into 2014, According to PwC,” accessed at http://www.pwc.com/us/en/press-releases/2013/deals-ma-outlook-press-release.jhtml
Ernst & Young‘s Press Release “Unprecedented third year fall sees M&A at lowest level for eight years but green shoots sprouting for overdue recovery in 2014,” accessed at http://www.ey.com/GL/en/Newsroom/News-releases/EY-News-Mergers-acquisitions-at-lowest-level-overdue-for-recovery
Mergers & Acquisitions Magazine, “Dealmakers Predict 2014 Will Be a Great Year for Middle-Market M&A,” by Mary Kathleen Flynn. Accessed at http://www.themiddlemarket.com/news/dealmakers-predict-2014-will-be-a-great-year-for-middle-market-m-and-a-246220-1.html
USA Today, “U.S. Companies on Auction Block in 2014?,” by Matt Krantz. Accessed at http://www.usatoday.com/story/money/columnist/krantz/2014/01/18/companies-merger-acquisition-deals/4304363/
Dealogic‘s Report: “Global M&A Review: Full Year 2013,” accessed at http://www.dealogic.com/media/89104/dealogic_global_m_a_review_-_full_year_2013_-_final.pdf
CNN Money Term Sheet, “What does stock market dip mean for M&A?,” by Dan Primack. Accessed at http://finance.fortune.cnn.com/2014/01/24/what-does-market-dip-mean-for-ma/
Disclaimer: This article is general in nature and is not intended to replace the guidance of an employment tax expert and/or legal professional with regards to an appropriate course of action in your particular circumstances. Please consult with a professional for appropriate advice in your case. Pursuant to IRS “Circular 230” rules, any information included herewithin is not intended or written to be used for the purpose of avoiding penalties under the federal Internal Revenue Code.