Survey: M&A drivers, inhibitors in 2016
According to the survey by KPMG LLP, a large cash reserve was cited by 58% of survey respondents as the biggest factor to drive M&A activity in 2016, compared to 34% the previous year.
Still, the year won’t be without its challenges.
Bill Baker, who leads KPMG's Healthcare and Life Sciences Deal Advisory practice, told us, “The scope of some deals, especially among payers, is drawing regulatory scrutiny. Since the start of the year, the equity markets have been volatile and that could affect valuations of some deals.”
In addition to feeling regulatory pressures, the industry is also facing various changes that come with their own set of challenges.
"Healthcare is facing a great deal of upheaval because of the profound changes influencing finance, regulation, supply chains and technology, both for their own information systems and the science behind new treatments," added Baker. "Companies are looking for geographic expansion and new markets to improve their prospects as healthcare adapts to changing reimbursement models."
In addition to cash reserves, other respondents cited consumer confidence (34 percent) and credit availability (29 percent) as drivers for M&A activity. "Strong balance sheets and readily available credit are expected to drive deals as companies look to gain scale," Baker added.
Inhibitors
However, credit availability was also listed (29%) as a factor that could inhibit deal activity. “Valuations were much more favorable for acquirers a few years ago,” said Baker, which he explained as one of the biggest changes in M&A activity this year than in previous years.
The respondents are concerned about slowing economic growth (42%), followed by rising interest rates (32 percent). Yet, Baker added: “Interest rates are still near historic lows and inflation is very well in check, so that may still be a bit overblown of a concern.”
Regularity considerations are also of some concern (18%), as well as a lack of suitable targets (30%).
"Dynamics affecting M&A activity can change year to year or even week to week if there is a market shock of any sort," said J. Preston Parker, principal for KPMG's Deal Advisory segment. "Beyond the external climate for deals, healthcare companies need to address the integration and separation issues that are necessary to deliver value from transactions. Addressing technology, people, process, contracts, legal entity, tax matters and rationalizing product and service portfolios are crucial for deals to succeed."
Ultimately, money will drive deals 2016, and it’s also initiating them, as the majority of respondents cited expanding into new markets, increasing their customer base, and enhancing intellectual property, as the main reasons for initiating M&As.
