2011 Outlook for M&A

Overall expectations for M&A activity over the next year are bullish, with more than 90% predicting an increase. The recent years, plagued by difficult access to credit, high unemployment and intense uncertainty felt by the general public, appear to have gone down with the trend toward growth and prosperity a little clearer now. Respondents across the globe are expecting the energy, financial services and TMT sectors to offer the most deal making potential and expect to see cross-border and domestic transactions.

Keeping with the upward trend, nearly 80% of the surveyed believe economic conditions will at least improve moderately. They continue to watch global GDP growth, interest and employment rates as they solidify their consolidation strategy, and while indicators are positive, M&A professionals are faced with residual challenges the recession left behind.

Signs of economic improvement have slowly surfaced, but many companies are hesitant to try their hands in the market due to debates over post-crisis regulations. Uncertainty surrounded legislative talks regarding tax rates, foreign investment, antitrust and banking regulation, which led respondents, especially in Asia and Europe, to expect further changes.

The valuation climate remains a significant concern for buyers and sellers according to respondents. But they are somewhat optimistic that the two sides will converge on price, particularly in North America where 75% expect the gap to narrow; 38% of European and 30% of Asian respondents agree. Indeed, respondents are relatively split over whether we are in a buyers’ or sellers’ market.

Linked to valuations is the availability of finance. After years of lapsed deals due often to the inability to secure funding, respondents don’t expect financing obstacles to be a major concern going forward. While they don’t expect it to go back to pre-credit crisis levels, they believe it will be easier to obtain, notwithstanding the addition of covenants