According to EY, the dynamics that made 2015 a record year for US dealmaking will continue into 2016 pointing to ongoing resilience for the M&A market. Driven by megadeals, US deal values rose a staggering 55.1% in 2015 to a record high at $2.3 trillion, compared to $1.5 trillion in 2014.1 Seven of the largest ten global deals in 2015 involved one or more US companies.2 Meanwhile, volumes declined by 3.2%, with 10,845 deals compared to 11,198 in 2014.3 The outlook for 2016 is promising: 57% of US companies have three or more deals in their pipeline versus just 10% of companies six months ago.4

US deal value was affected by a surge in high-profile megadeals. In 2015, 47 deals were valued at $10 billion or more, up 235% from 20 such megadeals in 2014. Additionally, 252 deals were worth between $1 billion and $10 billion, up 9% from 227 deals in 2014. Moreover, the US was the most targeted country in 2015, with 1,343 inbound deals worth US $408 billion.5 Markets are rewarding acquirers for these deals: shares of US public companies announcing acquisitions more than $1 billion have increased an average of 2% the day after the announcement.6

“It was a record-year all-around for US M&A and momentum will continue to be strong in 2016. US targeted M&A continues to dominate, attracting record values last seen in 2007. While the top megadeals garnered most of the attention, there was robust activity in the upper-middle market too and that is expected to continue in 2016,” said Rich Jeanneret, EY Americas Vice Chair, Transaction Advisory Services. “The US will remain a hotbed for sustainable M&A activity in the immediate term, especially as financial markets continue to reward dealmaking. An overwhelming 74% of US executives expect to do deals in 2016.”7

That said, companies will closely monitor geopolitical risks and market financing. “With perpetuating concerns about terrorism, geopolitical shocks may cause some executives to be more cautious. Twenty-eight percent of US executives viewed increased global and regional political instability as the biggest business risk they face,” said Jeanneret.8 “Previously bountiful financing markets are likely to tighten a bit as global growth slows. Corporate access to the debt markets is still robust, but pricing will increase as spreads widen, leverage levels will be challenged and covenants will start to shift back to the lender.”

Changing consumer preferences and technological disruption will spur next wave of M&A

More US executives will be looking at acquisition targets outside of their own sector in 2016, as 93% plan to do a cross-sector acquisition.9 The main strategic drivers for this are access to new ideas or production technologies (43%) and changes in customer behavior (27%).10

“Changes in customer behavior lie at the core of shifting competitive dynamics across sectors,” said Jeanneret. “If companies want to protect market share, they must find a way to adapt, align with changing customer tastes, or innovate such that they are driving the next ‘big idea.’ Often times, this means turning to M&A for new materials, intellectual capital or evolutionary technologies.”

Private equity outlook– deal appetite high, but deploying capital proves challenging

Private equity (PE) fundraising is on track for another strong year, driven by a continued flow of distributions back to LPs, as PE firms continue to aggressively exit portfolio holdings. US PE firms have raised $272.6 billion so far this year.11 Indeed, dry powder for buyout firms grew by nearly 12% in 2015, to $275.1 billion, and now exceeds the previous highs seen in 2006-2007, as firms raise capital faster than they can deploy it.12 Supplementing this elevated level of committed capital is the significant amount of co-invest capital, or “shadow capital,” that adds to the reported dry powder resulting in a material uptick in capital to be deployed. Consequently, deploying capital has emerged as the single largest challenge facing the industry.

With record dry powder and an accommodating M&A environment, PE firms are aggressively pursuing acquisitions, but peaking valuations impacted by increased competition, an unsettled debt market, and rising equity markets are challenging the general partners’ (GP) ability to close deals,” said Jeff Bunder, EY Global Private Equity Leader. “As a result, we expect more firms to further expand their sector and geographic focuses, and consider minority investments and growth capital investing opportunities. They will also continue to pursue buy-and-build strategies and commit more time to chasing add-ons to existing portfolio companies in 2016.”

Add-on acquisitions reached record highs in the US during 2015. PE firms announced nearly 800 deals valued at US$220.5 billion.13 With acquisition multiples expected to remain high, more firms will look to bolt-on deals, which is a more defensive reaction to the inflated valuation environment.

“PE buyouts have been relatively stable over the last few years, but corporate acquisition levels have spiked,” said Bunder. “Moving forward, we expect an increase in the percentage of exits to corporates, filling the void left by fewer IPOs and fewer secondary deals, as PE’s wrestle with meeting increasing valuation expectations. Driving this phenomenon is the recognition among corporates that the path to growth is through acquisitions. Buyouts have been supported by a readily available financing at attractive terms. Within the last few months the debt market has softened. Leveraged loans have decreased 12% from last year.14 It remains to be seen whether the financing market will remain challenging in 2016.”

PE exit activity values declined 11% from 2014’s record high, with secondary sales declining 42% by value.15 “Exit activity was driven heavily by strategic acquirers who were buoyed by significant amounts of corporate cash reserves, elevated stock prices, readily available financing and the pressure to drive growth. As strategic acquirers continue to bid aggressively, look for PE firms to exhibit more discipline and step back a bit from the heated auction environment which will likely lead to a further decline in secondary sales in 2016,” said Bunder.

The IPO market proved choppy for PE firms in 2015, with the window opening and closing in equity markets around the globe. The current market is limited in terms of the listing of PE backed companies; additionally, a number of companies in the pipeline have been pulled or pushed their timeline out six to nine months. There were just 51 US IPOs of PE-backed companies in 2015, a 41% decline versus 2014.16 However, while new filings have tailed off, there remains a significant pipeline of new deals when the window reopens. GP’s have not abandoned IPOs as an exit alternative but there is a recognition that listing will be more difficult to launch in the short term.

Despite recent struggles, emerging markets remain attractive to PE firms. “There’s been a fair amount of PE investing taking place in emerging markets in 2015, which is a bit surprising,” said Bunder. “If you look at countries like China, India, Mexico, and Brazil, PE investments are occurring at a steady rate. Firms sense an opportunity to invest in emerging markets as valuations have declined which, coupled with currency depreciation, offers a value investing opportunity. With corporates becoming more risk averse in these markets and a challenged market for IPOs, PE’s are actively filling the ‘capital gap’.”

Sectors to watch in 2016

Particularly active sectors in the US include technology, life sciences, healthcare, consumer products, automotive, oil and gas and financial services. Across industries, companies are considering transformational deals and continued divestitures and spin-offs to stay ahead of changing consumer preferences and technological disruption.

Technology – 2016 will be the year of the mashup

Technology continues to be an active sector for M&A, with 2,876 US technology deals, up 16.4% from 2,470 in 2014.17 The value of US technology deals increased even more substantially with transactions valued at $442.7 billion this year, up 148.4% from $178.2 billion last year.18 While overall global tech M&A deal volumes continue to rise, the top of the deal-size range in 2016 is expected to stay between $5 billion and $20 billion.19 Thus, 2016 might mark the end of an era when it comes to super-sized deals because of the limited number of partners.

More so than any other sector, cross-sector M&A has been booming in technology. “Mobile, transformation of the cloud environment, big data analytics, and the Internet of Things (IoT) are hitting non-industrial sectors leading to higher volume trends,” said Jeff Liu, EY Global Technology Leader, Transaction Advisory Services. “2015 was the year that industrial executives fully embraced technology, particularly the “Internet of Things” (IoT), as a way to maintain or grow market share and increase operational efficiencies.”

In addition to an expected uptick in M&A activity, there will be more cross-sector partnerships in 2016 involving technology companies. “There will be more “industry mashups” where companies partner and collaborate to deliver customer solutions,” said Liu. “Certain sectors, like automotive, may be more active than others as executives do not want to lose market share because of technological disruptions coupled, in some instances, with changing consumer preferences. With an industrial sector like oil and gas, technology such as IoT can provide greater operational efficiency at a time when oil prices are well below averages.”

Life sciences and healthcare – market positioning to drive M&A

Life sciences

The appetite for US deals in life sciences was exceptionally strong in 2015, with deal values soaring 44.7% in 2015 to a record-high $462.2 billion compared to $319.5 billion in 2014.20 Deal volumes were up 21.5% with 768 deals in 2015 compared to 632 in 2014.21

“Pharmaceutical companies are being rewarded for narrowing their strategic focus to fewer businesses and therapeutic areas,” said Jeff Greene, EY Global Life Sciences Leader, Transaction Advisory Services. “Several factors will likely have a positive impact on future M&A activity including: a more restricted IPO window for biotech companies, continued pricing pressure which will spur more consolidation across the industry, the growth imperative, the need for increased scale, along with firepower and a continuing trend of shareholder activism.”

Disruption is also expected to lead to more M&A activity in 2015, driven by changes in consumer behavior and access to new technologies. “Partnerships with technology companies in the consumer health and innovative therapy segments will continue,” said Greene. “Additionally, there is an increased push to best securely create, collect, curate and manage patient data. Whether this takes the form of connected wearable devices or at-home monitoring, today’s partnerships will likely drive deals in the medium to long term. We could also see more collaboration between large and small biopharma players, with immuno-oncology being a key focus.”

Commenting on specific areas of activity, Greene added: “Deal activity in the animal health space will likely pick up in 2016 and we’ll continue to see more divestitures in medical devices.”


Healthcare deal volume continued to grow, increasing by 7.2% to 464 deals in 2015 from 433 deals in 2014.22 Transaction values fell to $24.9 billion, down 12.9% from $28.6 billion in 2014.23

“With the steady move towards value-based care, there continues to be convergence among healthcare sectors and further development of a continuum of care within healthcare companies,” said Gregory Park, Senior Managing Director, US Healthcare Investment Banking, Ernst & Young Capital Advisors, LLC. “Parties who have historically been separate, such as managed care and providers or sub-sectors within the provider universe, are coming together in different ways. Increasingly, positioning within the healthcare market will be driven by consolidation, particularly as disruptive forces, like the evolution towards value-based reimbursement from volume-based payments and the move towards consumer-directed healthcare, develop momentum. And, of course, traditional consolidation drivers, like increasing market presence and cost reduction, remain at play.”

“As the healthcare sector continues along this robust M&A path, there is likely to be an uptick in asset divestitures,” said Park. “We would expect increased, but selective, pruning of business lines, as strategies become more refined in our highly dynamic healthcare delivery and payment systems.”

The forthcoming 2016 US presidential election is not likely to have a major impact on healthcare firms’ strategies. “While healthcare is always a key election issue and creates a level of market uncertainty, executives will not let that impact their strategies. There is a unique level of self-determination today where market leaders are driving change, rather than letting change happen to them, in the march towards a patient-centric, outcomes-focused and cost-efficient health marketplace,” said Park.

Automotive – ripe for disruption, auto manufacturers look to technology for reinvention

US automotive M&A activity remained strong in 2015, with deal values up 89.1% at $95 billion.24 Deal volume held steady with 448 deals completed in 2015 compared to 468 in 2014.25 With automotive manufacturing and production volume approaching near record highs, coupled with low oil prices and low interest rates, the outlook for M&A remains promising in 2016. Nearly 60% of executives expect to pursue acquisitions in the next 12 months.26

Mark Short, EY Global Automotive & Transportation Leader, Transaction Advisory Services, cites the need for executives to look outside the automotive sector for deals. “Automotive companies are realizing they can’t meet consumer or regulator demand for innovation on their own. As a result, they must identify, invest in and use new technologies to gain competitive advantage. In 2015, automotive firms partnered with technology companies to advance the development of connected vehicles, mobility sharing, vehicle safety, autonomous vehicles and fuel economy. As the automotive and technology sectors converge, we expect to see more cross-sector transactions.”

“The majority of deals in 2016 are still expected to be $250m or lower, however more executives than usual (24%) anticipate completing larger deals.27 Carve-out divestitures are also expected to increase,” said Short. “The automotive sector is highly cyclical however, and we’ve seen several strong growth years already. Executives will need to think strategically about how they can hedge against possible negative growth trends in the future, with M&A being one avenue to do so.”

Oil and Gas – low oil prices will drive more distress and forced M&A activity

With the price of oil dropping dramatically in 2015, US deal values and volumes followed suit falling 23.8% and 31.7% respectively from 2014 figures.28 There were 382 US deals in 2015 compared to 559 in 2014.29 Values fell to $188.7 billion.30

Vance Scott, EY Americas Oil and Gas Leader, Transaction Advisory Services, expects an uptick in M&A for 2016. “While management teams are hoping for a price rebalance similar to what transpired in 2009 and 2010, barring any geopolitical events, oil prices will continue to be low, and this price distress will eventually force M&A activity, particularly before the spring borrowing base redeterminations,” said Scott.

“There will likely be more asset divestitures and stock-for-stock deals in 2016 as we will see organizations that are highly leveraged but have good offerings looking to do deals with businesses that have lower leverage,” said Scott. “Overall, there will be an increase in creative deals that seek to satisfy debt holders and reduce debt from the balance sheet as the challenging conditions persist. We may also see companies seeking cross-sector technology deals as a way to lower costs and increase productivity. Ultimately, many executives will be waiting patiently to see what happens with commodity prices.”

Consumer products – portfolio optimization and developed-market targets at the core of deal activity in 2016

Consumer products deal volume declined in 2015, down 7.3% to 944 from 1,018 last year.31 However, deal values continued to improve, rising to $217.6 billion in 2015, up 24.4% from $174.9 billion in 2014.32

Consumer products companies have sharpened their portfolio focus on developed-market businesses. “Large consumer product players are optimizing their brand portfolios and market exposure by disposing of non-core and lower-growth businesses, while rechanneling investments into acquiring or expanding in faster-growth or higher-margin businesses,” said Greg Stemler, EY Americas Consumer Products & Retail Leader, Transaction Advisory Services. “In the absence of ample growth avenues, companies are targeting operational efficiency by making strategic divestments. Portfolio optimization is emerging as a critical theme, driving strategic transactions amid increasing investor pressure on companies to deliver shareholder value.”

Financial services – robo-advisors yet another example of how technology will drive M&A

Financial services deal values were up a staggering 404% to $369.9 billion in 2015 from $91.4 billion in 2014.33 Overall deal volume was up slightly with 1,030 deals in 2015 compared with 1,020 in 2014.34 The increase in availability of significant financial services businesses for sale, as historical players chose to exit in the banking, real estate, and commercial credit spaces, along with notable transactions in insurance, driven by the need for consolidation and scale, drove the spike in values.

“Organizations are finalizing and executing their M&A strategies, including exiting non-core businesses or under-scaled bank, brokerage or wealth businesses,” said Nadine Mirchandani, EY Americas Financial Services Leader, Transaction Advisory Services. “Convergence and diversification among the traditional players is blurring sector lines. We are also seeing effects from the increased role of alternative asset managers as a provider of capital and receiver of funds. These factors, plus a strengthening appetite among regulators to approve deals, should help move the deal pipeline forward.”

Ongoing technological disruption may also drive activity. “While there is talk about robo-advisors disrupting wealth management, these players have attracted a fairly low amount of assets under management compared to established organizations. Notwithstanding that, the advice model has merit and traditional players will either create their own robo-advisor solutions, which some are doing already, or acquire an existing robo-advisor platform to maintain market share,” said Mirchandani.


“Several US M&A records were shattered in 2015. The desire to do deals remains strong and the financing to execute them is in place for 2016,” Jeanneret concluded. “While appetites remain high, executives will continue to exert patience and walk away from deals with too many risk factors. Companies will seek opportunities outside of their industry sector in the search for new growth and innovation. Given the unrelenting power of disruptive forces impacting almost every industry – whether it is through changing consumer preferences or the introduction of new technologies – companies sitting on the sidelines will do so at their own peril. Markets will remain supportive of companies seeking inorganic growth opportunities.”

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About EY’s Transaction Advisory Services

How organizations manage their capital agenda today will define their competitive position tomorrow. Our nearly 10,000-strong professionals in member firm’s across the globe works with our clients to help them make better and more informed decisions about how they strategically manage capital and transactions in a changing world. Whether you’re preserving, optimizing, raising or investing capital, EY’s Transaction Advisory Services bring together a unique combination of skills, insight and experience to deliver tailored advice attuned to your needs — helping you drive competitive advantage and increased shareholder returns through improved decision-making across all aspects of your capital agenda. EY’s Transaction Advisory Services was named the Accountancy Firm of the Year in Europe by Mergermarket in 2014, 2013, 2012 and 2010.