Strong Fundamentals and “Eagerness” Likely to Drive More M&A Deals in 2012

According to an Ernst & Young report released last week (12/9/11), strong fundamentals, led by an increased focus on growth, should generate an uptick in deal flow in 2012 compared to 2011, which has been flat YTD in terms of the number of deals.

  • Strong fundamentals cited in the report include
    • robust cash positions
    • strengthening balance sheets
    • improved credit markets

Dealmaking fundamentals

  • Fortune 1000 Companies continue to hold a tremendous amount of cash on their balance sheets and have over $2 trillion in cash.2
  • Access to credit has also steadily improved since 2009.
  • Buyer-seller expectation gaps are narrowing and valuations are stabilizing.
  • Fifty-five percent of US companies expect asset prices to remain at current levels over the next six months.
  • 36% of US companies say they will pull the trigger on an acquisition in the next year, according to the Ernst & Young survey.3

Private equity’s split personality in 2011

Private equity (PE)  increased momentum through the first part of 2011 evidenced by bigger deals and larger exits, including two record breaking IPOs.

However, halfway through 2011 activity slowed down impacted by the sovereign debt crisis, deficit reduction impasse and a growing concern about a slowing economy.

For the year, PE activity decreased 19% in value to $138.1 billion, while the number of deals remained flat, declining only 1%, at 914 deals.4

Focus on divestitures

In the US the number of divestitures increased 3% to 2,453 and experienced a 12% increase in deal value.5

According to the October Ernst & Young survey, divestiture activity is likely to increase with 30% of US companies expecting to execute a divestiture in the next 12 months. 6

Key sectors

With the total number of US deals remaining flat, power & utilities and healthcare stood out and saw double digit growth year over year in deal volume. Along with technology, activity in these sectors is expected to increase in 2012.


Healthcare activity in the US increased 11% to 565 deals year to date and the value of healthcare deals skyrocketed 159% to $113.8 billion.7

This was mostly driven by a handful of large deals as healthcare services companies and payers looked to achieve scale and, in some cases, drive sector convergence in the wake of healthcare reform legislation passed in 2009.


In 2011, deal activity in the technology sector was relatively flat in the US compared with 2010, with a slight decrease in both the number of deals and value to $79.4 billion.8

Globally, the number of tech M&A deals saw an uptick of 5% and deal value significantly increased by 18% to $152.4 billion.9

Brazil and China

China is the number one country in the world where companies are looking to invest or execute deals in the next year.10

With plenty of financing and capital available, M&A was strong in China with $119 billion in deal value and 2,493 deals announced in 2011 so far this year, up nearly 9%.11

China itself is also looking overseas, with over $22.3 billion in outbound deal value announced so far this year, representing an 8% increase over the prior year.12

Although opportunities are abound in China, this Reuters article provides insights into the challenging American business experience in China over the past 10 years since China joined the WTO.

U.S. companies have demonstrated significantly more interest in Brazil; with the number of U.S. inbound deals in 2011 up 15% over the previous year.13

The total number of deals in Brazil increased 22% to 578 deals in 2011.14

Brazil has been minimally affected by the global economic crisis; in fact, the country has benefited from the slower growth in more matured economies.

According to the International Monetary Fund, Brazil is expected to overtake the United Kingdom as the sixth largest global economy in terms of GDP by the end of this year and is expected to break into the top five by 2020.15


“In the immediate term, it is hard to predict M&A activity as we see drastic market swings, but we know for certain that the eagerness for M&A is there and we expect to see dealmaking pick-up in the first quarter of 2012. In the US, companies with strong balance sheets and plenty of cash on hand are well-positioned to finance and execute strategic transactions and grow in 2012,” says Rich Jeanneret, Americas Vice-Chair, Transaction Advisory Services at Ernst & Young LLP.


The Bourne Partners Team


1 Thomson Financial as of 11/30/2011

2 2011 Fortune 1000 as of November 15, 2011

3 Ernst & Young’s Global Capital Confidence Barometer, October 2011

4 Dealogic as of November 30, 2011

5 Thomson Financial as of 11/30/2011

6 Ernst & Young’s Global Capital Confidence Barometer, October 2011

7 Thomson Financial as of 11/30/2011

8 Thomson Financial as of 11/30/2011

9 Thomson Financial as of 11/30/2011

10 Ernst & Young’s Global Capital Confidence Barometer, October 2011

11 Thomson Financial as of 11/30/2011

12 Thomson Financial as of 11/30/2011

13 Thomson Financial as of 11/30/2011

14 Thomson Financial as of 11/30/2011

15 International Monetary Fund World Economic Outlook, September 2011


About Bourne Partners

As a healthcare-focused merchant bank, Bourne Partners provides financial advisory, direct investment, alternative assets and management consulting services to our client-partners. We play an active role in helping businesses grow by creating long-term, profitable relationships that extend beyond single transactions. It is our focus on relationships and long-term results that has yielded us an impeccable track record of client satisfaction . Our direct and indirect investments in sector-leading companies – often through our relationships with top-tier Private Equity funds – allow us to learn about the best-of-the-best from the inside and apply that knowledge to the companies we serve. At Bourne Partners, we operate within a specific set of core boundaries: integrity, accountability, teamwork, loyalty and commitment are the driving forces behind everything we do.
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