2011 M&A Forecast

Posted on Monday, 3 January 2011. Filed under: Commentary, Mergers |

As every year, I would like to start the new year with some thoughts about the M&A volume for the coming year. I’ll be upfront about my outlook for 2011: it will be better than 2010, which itself was better than 2009. See below:

There’s a lot of interesting things about the chart above.  Most commentators have noticed the obvious improvement in activity in 2010 over 2009 (and 2009 does look set to be the ‘low’ point after the peak of 2007).

But look a bit more carefully at this ‘low’ of 2009:  it is almost double the low (2002) that happened between the last two merger waves.  Thus 2009 wasn’t really all that much of a low as only seven years earlier — although if you had listened to many, it was as if Armageddon had come to the M&A markets in 2009!  Many thought it had continued into 2010.

Look even more carefully at the above chart:  There were five years since 2000 when the market was worse than 2010, and that only four years exceeded it!  This means that 2010 is not the terrible year that everyone seems to think it was.  It is only so compared to the incredible peak of 2007 … itself a peak that few people feel will be reached again anytime soon (and I agree!).

What is notable about 2011 as we start the year is the uptick in confidence (note my own blog on the importance of business confidence in the M&A cycle:  ‘Why you should do an M&A deal now‘).  There is increased activity as well from private equity firms and large cash hoards in corporations (which in the past have been used to do deals).  I continue to hear anecdotally from people working in the M&A industry that they are very busy, and I know that many of the largest advisors are seeking new employees.  (I can tell you that my own unofficial statistic on this is from the requests that I receive from banks looking for new entry-level employees who are recent graduates of my own M&A class at Cass Business School.)

Last year when I put forth my forecast for the year (‘2010 M&A Forecast‘), I noted as well the increase in cross-border activity and the emerging markets.  These will continue as well.  In fact, I’m very proud of that forecast and several updates that I’ve made, as it appears at least this time that I was generally on the mark.

I still think there’s some stickiness to the current market levels that will keep the overall volumes constrained, but you should expect more deals in 2011 than the past two years.  Just don’t expect TOO many more.

I am sure a number of board meetings early in the year will have on their Board Agenda a strategic discussion of potential acquisition targets (or merger partners).  If this isn’t already on the agenda, it should be.  And the discussion should include a detailed assessment of what competitors will be doing in this regard.  Because it is likely those competitors will be doing the same.  No one in the board room wants to be left behind.

Any other thoughts about 2011?


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