By Braun Jones, Partner, WWC Capital Group, LLC
Are mergers and acquisitions making a come back? The Financial Times reported this week that while corporate M&A activity slipped in the United States and in Europe during the first quarter of 2010, there has been a surge of deals in Asia with transactions up more than 93 percent from a year ago.
According to the FT article, “M&A surges in Asia while US and Europe suffer”:
“… Wilhelm Schulz, European head of M&A at Citigroup, said there had been signs of a return of “strategically driven” deals.”
In addition to this good economic news from Asia, M&A in the defense and aerospace industry is also making a come back. According to an article in this week’s Defense News, “Merger Market Heats Up Again”:
“… defense and aerospace mergers and acquisitions (M&A) worldwide appear to be picking back up, thanks to looser credit and a clearer picture of U.S. spending priorities, according to analysts and investment bankers. …
“A dramatic improvement in the credit markets over the past six months is helping mid-size companies and private equity firms make acquisitions with better borrowing rates …”
So, what does this mean for the M&A market in the United States and the nation’s capital?
Here in Washington, deals among the region’s Federal Government contracting community will continue to dominate the landscape. Although deal quality and volume are increasing, we are still well-below peak activity levels, even in the government sector. The advancing stock market, increased IPO activity, available credit, large cash reserves, and improved CEO confidence are all contributing to a more favorable environment.
When compared to the D.C.-region, the broader U.S. M&A market is less favorable but improving steadily. Larger corporations are shedding assets that add risk to their core business creating a plethora of divestitures on the market. In addition, many companies are sitting on large amounts of cash hurting their return on invested capital. The need to improve these returns for shareholders will keep pressure on CEOs to make acquisitions.
Please drop us a comment with your predictions for when and how the market will heat up.