5 M&A Predictions for 2013
1) Lots of divestitures, especially by middle market businesses: Both large and small companies are looking for ways to be more competitive. Companies are refocusing on their core businesses and protecting their turf. As a result, we anticipate a greater number of companies to divest non-core businesses and redeploy the proceeds as growth capital or to strengthen the balance sheet.
2) Slight decline in M&A volume (<80 deals): We anticipate a hangover from the flurry of 2012 deals, resulting in fewer deal announcements in the early part of 2013 relative to prior years. That said, as the market hopefully stabilizes upon clarity around the CR and sequestration, we’d anticipate strong deal activity in the second half of the year.
3) Smaller, focused transactions in well-funded areas: The priorities have changed toward the lower risk pure play deals. It’s easier to diligence, integrate, and justify these smaller transactions. The priority areas of Cyber, Intel, C4ISR, Health, Cloud, Big Data, and Cost Efficiency Solutions remain the belle of the ball.
4) Disparate valuations: Valuations will continue to bifurcate between the aforementioned hot lanes and everyone else. It’s a simple supply and demand equation.
5) Heightened deal activity for the non-hot lane businesses: The market is getting increasingly difficult and frustrating. Weathering the storm will require continued financial and management investment in the company, and patience to ride-out the roller-coaster environment. These deals will be done at more modest valuations, but still “win-win” outcomes for buyers and sellers alike.