PE fundraising points to near-term upturn in M&A

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Transaction professionals are forecasting a strong year, betting that Republican control of the federal government will produce lower business taxes and fewer regulatory hurdles. While some areas of M&A may suffer in the transition of power, such as healthcare and cross-border deals, many sectors are expected to fare well under the new regime, especially energy and financial services.

Uncertainty about the U.S. election caused M&A to slow down in 2016, which failed to reach the heights of the previous two years, as the charts that follow demonstrate. But once the election ended, dealmaking picked up, making the fourth quarter the year’s best for M&A. December proved to be one of the most active months of the year, as buyers and sellers pushed to close deals before the year ended.

“We look at our pipeline of transactions right now, and it’s about as robust as it’s been in quite some time,” said John Martin, co-CEO of middle-market lending powerhouse Antares Capital, in an interview near the end of the year.

In January, the overall M&A scores for the 3-month and 12-month outlooks on Mergers & Acquisitions’ monthly survey of 250 dealmakers hit the highest mark since mid-2015, reflecting widespread optimism. Nearly 70 percent of survey participants said they expect the outcome of the U.S. election will drive more middle-market M&A.

The private equity coffers are primed for M&A deals in 2017, thanks to successful fundraising in 2016. In a sign of health, 2016 was the fourth consecutive year in which annual fundraising totals exceeded $300 billion, although the figures still lag the nearly $400 billion raised annually by funds that closed before the crisis in 2007 and 2008. In 2016, PE funds globally raised $355.3 billion, according to Preqin, based on data collected by Feb.2. That figure is expected to rise, as more data is collected. It already surpasses the post-crisis record of $348 billion raised in 2014. Providing another sign of optimism about future dealmaking, a record number of new private equity funds are currently being marketed to investors.

Editor’s Note: To measure activity in the middle market, Mergers & Acquisitions looks at transactions that fulfill several requirements: Deals must have a value of roughly $1 billion or less, or an undisclosed value; they must be completed (not just announced) within the timeframe designated; and they must include at least one U.S. company in the role of buyer and/or seller. Excluded from our charts are: recapitalizations; self-tenders; exchange offers; repurchases; stake purchases; and transactions with undisclosed buyers or sellers. Except where noted, our data provider is Thomson Reuters, which updates its databases continuously. We use the data available at press time. For this article, data was collected on Jan. 20, 2017.

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