Capital Markets | Mergers & Acquistions

Analysts expect 2015 to be a great year for mergers and acquisitions, with the US leading the way. Growing confidence in the US economy could ignite a merger boom, they say. Corporations and private equity funds are sitting on record amounts of cash and need to put some of this dry powder to work, especially in a low interest-rate environment.

“The table has been set for a number of years, and confidence is coming back in the market,” says Dan Tiemann, national leader of transactions and restructuring at KPMG in the US. “There was a substantial increase in deal value in 2014, and the dance will continue in 2015.”

The value of worldwide deals announced last year rose 47% from a year earlier, and there were 95 megadeals worth at least $5 billion each, more than double the number in 2013, according to Thomson Reuters. Deals are getting larger, in part because corporate profits and corresponding valuations are increasing, says KPMG.

Based on a survey of 735 M&A professionals at US corporations, KPMG says the industries that are expected to be most active this year in terms of M&A are those that are undergoing the most transformation. The most active industry, the survey found, will be healthcare, as the industry responds to the Affordable Care Act.

The technology, media and telecom industry is expected to be the second most active, followed by the oil and gas industry. Mobile technology, Cloud computing, data analytics and security concerns will boost M&A in the technology sector, KPMG says.

IBISWorld, a Los Angeles-based market research firm, analyzed more than 1,000 US industries across its database and identified six in which it expects M&A to grow significantly this year. In addition to healthcare, technology and energy, IBISWorld selected biotechnology, advertising, and oil and gas field services.

In 2015, spending on advertising is expected to grow 3.9%, with digital ads accounting for much of the growth. With oil prices falling, many energy companies will experience cash-flow constraints owing to high debt levels and operating costs. Larger firms with manageable debt are likely to acquire smaller rivals, IBISWorld says.

Kelly Rose, co-chair of the corporate department at international law firm Baker Botts, says: “While deal volume increased, deal size is what really drove [2014] M&A totals to much higher levels. We saw a significant increase in spin-off and split-off activity over the course of the year, and we expect it to continue into 2015.”

The Asia-Pacific region was a major contributor to the fast growth of M&A activity in 2014. A record $744 billion of deals were announced in the region last year, a rise of 62% from a year earlier, according to Thomson Reuters. China was the most-targeted nation, with deals totaling $390 billion.

Thailand and Vietnam have become centers of intra-Asian M&A activity ahead of the planned introduction of the Asean Economic Community later this year. Last year was the strongest year for M&A since the financial crisis, as big-ticket M&A returned, Allen & Overy says. The prospects for a strong 2015 depend on stable markets and continued CEO and shareholder confidence, the firm says.