US energy sector poised for rising M&A activity


Although the first quarter of next year may be slow in merger activity, "sound deal fundamentals" indicate that the rest of 2013 will be a stronger year for US mergers and acquisitions, according to a new report from accounting firm PricewaterhouseCoopers.

PwC said an acceleration of deals taking place during the final months of this year may result in a lull in activity during the first quarter of next year; however, ongoing access to capital and financing, strengthened balance sheets and divestiture activity will continue to fuel deal activity in 2013.

"The fundamentals for sustained M&A activity in 2013 are solid, with improving corporate confidence, increasing private equity activity from both a buy and sell side perspective, and relatively healthy debt markets," said PwC's US deals leader Martyn Curragh.

"There remains strong competition for quality assets as both corporates and private equity continue to seek out deals to fuel their growth and deploy capital."

According to the firm, in the 11 months that ended in November, there were a total of 7,585 transactions representing $705 billion in disclosed deal value.

PwC noted that in October alone, deal value spiked to a 14-month high, reaching $96 billion. It said with 754 deals, October was the most active month since August 2011.

In terms of deal size, PwC said middle-market deals have been the "silver lining" for deal activity, accounting for 98% through November. PwC expects this trend in middle market deals to continue in 2013.

Divestitures accounted for 43% of total disclosed deal value and 30% of deals overall, the highest level since 2005. PwC said these would remain a key driver for deal making in the year ahead as companies seek to unlock value in assets.

With a total of 1,334 transactions and $128 billion in value, private-equity deals accounted for 18% of total deal value.

Among the sectors that are presenting opportunities, PwC listed oil and gas, noting that volume and value levels are close to 2011 levels with an increase in mega deals led by private-equity funds that have increased their investment and exposure to the energy industry. PwC said it expects deal activity to increase in 2013, with ongoing consolidation in the shale plays very likely.

It also singled out financial services, saying both domestic and global financial institutions continue to seek divestiture of nonstrategic operations in seeking to further bolster capital levels and unlock asset value. At the same time, it said, as organic loan growth has slowed, many banks will look to acquire asset-generating businesses.

PwC expects valuation gaps will narrow which, coupled with resolution of regulatory uncertainty, will likely drive increased deal volume in the coming year.

The firm expects 2013 to be a "banner year" for mergers and acquisitions in the field of healthcare and pharmaceuticals amid what it calls the near-certain implementation of the Affordable Care Act and its sweeping reforms impacting business models.

PwC also said it expects a slight reduction in full-year acquisition value among technology companies, due in part to the global macroeconomic environment. More optimistically, the firm said it is seeing very early signs of growing activity among large technology companies to re-evaluate their product and business portfolios and initiate divestitures.

Drivers for future deal activity in the sector include changes in enterprise customers' demand towards cloud technology services, continuing high growth in social and mobile sectors and a favorable appetite among technology-oriented private-equity funds for slower growing but cash-flow-producing assets.

Dow Jones Newswires

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