DENVER—(Jan. 17, 2012)— Mergers and acquisitions in the U.S. have been on the rise since 2010, and RGL Forensics’ valuation and corporate finance group believes that 2012 will likely be another solid year for deals.
Matt Morris, director of Corporate Advisory Services for RGL, said 2010 represented a significant rebound in U.S. mergers and acquisitions (M&A) activity and this strong growth continued through 2011, particularly in certain commodity markets. Having shored up their balance sheets and lined up low cost capital, many companies shifted their focus to looking for growth through acquisition. A continuing stabilization of the U.S. economy also contributed to this activity and provides generally positive signs for 2012.
Energy, metals & mining and telecommunications were among the top industries for M&A activity in 2011, Morris noted, with an emphasis on larger transactions than in the recent past.
While the uptick in activity and market valuations have demonstrated the willingness of capital markets to provide financing, there is an increased focus on a deeper, more nuanced understanding of target companies. An emerging trend in this due diligence is retaining forensic, valuation and strategy experts to look behind the numbers for latent issues that may influence value. Diligence efforts are increasingly focused on quantitatively evaluating customer relationships to predict and, if possible, curb post-closing revenue declines.
Valuation and M&A Outlook for 2012
“The good news is that capital continues to be deployed in an economy hungry for investment,” said Morris. “As we’re seeing the credit markets gyrate, debt and equity investors are increasingly concerned with the quality and resourcefulness of front-end analysis and due diligence. Outside experts of all types, forensic accountants, valuation professionals and strategy authorities, are being retained to analyze and determine the true value and risk of potential M&A targets.”
Morris predicts the following for 2012:
• Flat to Moderately Higher M&A Markets in the US: Financial experts are still biased towards conservatism but capital momentum has returned from the nadir of 2008 to 2009,” Morris said. “As leveraged loan markets continue their uncertain path, private equity transactions will likely remain inconsistent, with a trend toward smaller deals, with the larger transactions reflecting the vertical or horizontal ambitions of strategic buyers.
• International Deals Remain Slow: With continued volatility in the European market, international deals are showing increasing signs of risk. This uncertainty will alter the valuations for foreign companies and may discourage international M&A activity and US transaction activity if ripple effects are felt. In addition, international investors are looking to minimize exposure to Foreign Corrupt Practices Act (FCPA) enforcement, further slowing the growth in cross-border deals.
• More and Deeper Due Diligence: Continued caution in 2011 caused investors to look for outside, non-biased evaluation of transaction targets even as due diligence budgets came under additional pressure. In 2012, Morris predicts this trend will continue, noting that the incremental diligence expenses are trivial as compared to the costs of doing a bad deal.
About RGL Forensics
RGL Forensics is an international firm of accounting, valuation and corporate finance professionals who are specially trained in discovering and defining financial value. The firm establishes relevant facts and reliable figures for corporate, legal, insurance and public sector clients and has done so for more than 30 years. For more information about RGL Forensics, please visit www.rgl.com.
# # #