Welcome to the March 2018 edition of the Merrill Deal Forecaster, a unique set of insights into future M&A based on Merrill’s majority share of financial due diligence projects. Our unique data and understanding of the deal landscape provides valuable, future looking insight into global M&A activity.
M&A DEAL FORECASTER
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Q3 Forecast YoY
Global deal launches surged this January, driven by a sharp spike in EMEA activity and steadier Americas numbers. Expect this to result in an exceptionally busy Q3 running into Q4 as the early year uptick winds its way through the year.
"The EMEA market is benefitting not just from robust global equity markets but from a more stable political and regulatory environment," says Merlin Piscitelli, Head of Sales, DataSite - Europe, Middle East and Africa. Even for larger deals, a lot of the activity is onshore, he said, noting that out of 22 EMEA deals with $1B+ price tags announced since the New Year, 15 were intra-EMEA.
Overall, while the steepest increase in deal process launches has been amongst low complexity deals, there's also been a healthy rise in medium and high complexity deals. And though US sale process launches are off to a relative-to-EMEA slow January, that may be because large companies and private equity firms have already moved to take quick advantage of the US tax reform bill, snapping up 44 Americas-based targets at $1B+ prices since the start of the year.
Global Deal Activity
*Based on a three-year moving average; 2017 calculated mainly on H1 closes.
*Complexity is based on average number of users per deal by 1st quartile, median and 3rd quartile for the years 2014-2016.
YoY Pipeline by Deal Complexity*
Deal duration times, as measured from DataSite project launch to close, fell by 17.6% to a 6.1 month average in 2017 from 7.4 months in 2014.*
M&A experts informally polled by Merrill attributed the decrease to more competitive auction processes, the rise of M&A insurance and increases in pre-due diligence analysis.
More competitive auction processes. Add agile, deal-hungry private equity players together with cash-heavy corporates then mix with prime acquisition targets and what do you get? Faster, more competitive auction processes, experts say. Due diligence speed and placing bids quickly are now major factors behind deal success.
Rise of M&A insurance. The recent ramp up in rep and warranty M&A insurance may also be in play, several sources speculated. M&A insurance has become standard in many industries to help mitigate exposure to unknown risks and liabilities. An unintended consequence could be more laxity on lower-level due diligence items, speeding up sale processes.
Increase in Pre-Due Diligence. The world has gotten smaller, at least from a business intelligence standpoint. A robust public and private financial information market makes it easier for buyside professionals to identify and vet potential acquisitions before teasers hit the inbox. Third party expert networks also have become endemic, letting deal-makers quickly fill in market knowledge gaps.
Global M&A due diligence times drop, but why?
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Global average M&A Dataroom duration