Top 3 Deal Driving Sectors of 2014
Taking a look at specific industries, we noticed particularly strong deal flow from a few sectors - TMT, real estate, and energy, mining and utilities.
25 April 2014
While uncertainties remain, 2014 is proving to be a watershed for the return of M&A – with data from the latest Intralinks Deal Flow Indicator™ (DFI) Report revealing a 16 percent increase in year-over-year early-stage global M&A activity.
There are many positive indicators that have attributed to the strong showing of M&A last quarter. For one, corporate confidence is returning - empowering corporates to pursue acquisitions. Additionally, factors like greater credit availability have made deals easier to complete - further helping turn investor confidence into action.
Taking a look at specific industries in the most recent report, we noticed particularly strong deal flow from a few sectors. Here are three hot verticals driving deal volume in the market:
Technology, Media and Telecommunications (TMT) – TMT showed strong growth, with five of the ten biggest deals of Q1 2014 taking place in this sector - volume and value rose 5% YoY to 542 deals, and 70% to US$179.9bn, respectively. There are a variety of factors driving deals in the TMT sector, including high-profile transactions taking place globally. Some of these players have turned to M&A to enter new markets or acquire new offerings, such as fibre, broadband or services. It’s possible that the strong interest in telecommunications deals generally is due to deregulation and the opportunities that the European Union telecommunications market will present to businesses. Many businesses will seek cross-border transactions to try to take advantage of the single market opportunities.
Real Estate – Real estate M&A activity remained particularly strong, showing a high monthly volume of announced M&A deals. Many of the largest announced deals in this sector involved real estate investment trusts or REITs. High attention in this sector suggests improved economic prospects in 2014. Given that real estate investment is connected to the broader economy through the valuation of real estate assets, in an improving economy, the ability of businesses to pay rent and the rate of occupancy increases – leading to increases in real estate valuations as well.
Energy, Mining and Utilities – There was strong performance in the energy, mining and utilities sector. The high levels of foreign direct investment from developing economies looking to secure energy supplies is a primary driver of this vertical's resiliency. In particular, we saw high large-cap activity from the Asia-Pacific region, posting both volume and value gains in deal announcements. Somewhat unsurprisingly, oil and gas exploration deals dominated. The largest deal in this sector however, involved an international bidder: Canada’s Baytex Energy announced plans to purchase Australia-based Aurora Oil and Gas. At US$2.2bn, the deal is the largest in heavy oil producer Baytex’s history.
With these three verticals driving deal volume, it’s safe to say that all signs point to sustained momentum in M&A activity through 2014. Dealmakers could be in for a good year.