Optimism wasn’t on the official agenda of the Daily Journal’s recent Western M&A/Private Equity Forum, but it was definitely a common theme throughout the event. Major legal players in the PE industry gathered at the Le Meridien in San Francisco, and it was clear these dealmakers are having a historically strong moment.
I had the privilege of attending the forum and soaked in the positive energy—the group as a whole is extremely optimistic. While 2015 saw $360 billion in deals, this year will most likely surpass that figure and put total deals in the $400 billion range.
This significant volume has been brewing for some time. At RoseRyan, which has many clients engaged with private equity, we have seen PE firms extend their traditional interest in mostly midsize companies to invest in smaller businesses as well as increase their activity in larger corporations. Perhaps there has never been so much firepower on the sidelines due to low interest rates and minimal places to invest.
Although the attendees and panels were optimistic, they did put things in perspective as the shadow of the dotcom and 2008 financial crises does persist. The upside right now is that we’re in an unprecedented time of growth as the following characteristics hold true:
- Companies have better business models
- Companies have more cash
- Valuations are more realistic versus last year
- Sellers are more pragmatic
- Sellers and buyers are being more creative to get deals done
- Companies are willing to spin out divisions
Where is the activity happening? The tech industry is particularly hot right now, of course, particularly considering the trends noted by the forum’s participants. These include:
- 2015 seemed to be the year of semiconductor companies, while for 2016 the key areas of investment are big data, analytics, mobile, artificial Intelligence, and deep learning.
- Chinese investors are aggressively looking to expand IP and want to place money outside of their own country. They want more innovation indigenous to China and are looking at making deep technology deals to make that happen.
- Internet of Things (IoT) continues to expand. Large industrial companies (GE, Bosch, Intel) are getting more involved in this space, adding to the momentum.
- Activist investors are packing more power with lower percentages of ownership. PEs are avoiding activist roles and are okay with being quiet and leveraging the activists’ activity.
In this age of uncertainty, when the election outcome is unclear and some businesses are reporting slowdowns, it was great to hear about a highly active market. Most deals are seeing multiple bidders, and participants reported that deal activity likely won’t be affected by elections or the Brexit fallout.
The fact is that companies, particularly in the tech sector, should be proactive as PE firms continue to extend their reach. Savvy companies that are fully prepared for the possibility of PE’s interest will be poised to make the best decisions for their future.
Chris Vane is a director at RoseRyan, where he leads the development of the finance and accounting consulting firm’s cleantech and high tech practices. He can be reached at [email protected] or call him at 510.456.3056 x169.