Aquirer Motivations and Market Outlook
While there is no way to forecast exactly how much longer the M&A boom will last, it is likely that activity will remain high as long as market conditions are favorable. The list of market drivers that favor M&A activity includes the following:
Favorable economic conditions. The US is enjoying its longest
period of expansion. Inflation is relatively low, GDP growth is high, and productivity continues to increase (driven by technological innovations
and its effect upon the supply chain).
Favorable capital markets. Money for doing deals is readily available. Strong equity valuations and appreciation make stock a viable acquisition currency that conserves cash and the debt capacity of acquiring firms. Debt rates have been reasonably stable and continue to be affordable.
Technological impact on risk and capital costs. Technological development has increased the availability of rich, real-time information about customers, corporate performance, and markets, allowing management to more effectively deploy resources and manage uncertainty. The reduction of uncertainty and mitigation of risk combine to effectively reduce the risk premiums associated with business activity.
Growth needed to maintain stock valuations. In the “old economy” stock price increases were fueled by revenue and earnings increases. However, in the “new economy” stock prices seem to move with announcements of partnerships, alliances and acquisitions. This encourages deal activity— especially in situations where organic growth appears inadequate.
Need for skilled and talented people. In a growing economy that is moving at “Internet Speed,” human capital is a valuable asset that is critical for success. The right acquisition provides immediate access to needed human resources.
Customer is becoming king. In the “new economy,” the customer is becoming increasingly more powerful. Identifying and meeting the needs
of customers is critical to revenue growth and staving off competition. Acquisitions provide a viable way for companies to stay responsive to the needs and increasing expectations of their customers. See page 2