If 2017 is any indication, the corporate development landscape for the near-term can be summed up with the phrase “The more deals the merrier.” And firms that are seeing this trend run the gamut from new start-ups to established corporations.
According to PitchBook, a financial data and software company, nearly 6,000 firms worldwide received first-time venture funding last year. This number is up 38 percent from 2010. On the M&A side, those numbers show significant growth in recent years too. In 2017, there were nearly 24,000 M&A deals, reflecting a increase of more than 30 percent since 2010. Not only are the number of mergers and acquisitions on the rise, but the size of the average deal jumped 61 percent during that same time period. It’s now nearing $35 million. PitchBook also notes that companies are spending more on M&A.
So let’s take a deeper look at these trends in corporate development and what’s driving their interest.
Increase in venture funding: In the first three months of 2018, the amount of venture investments in U.S.-based companies was a whopping $28.2 billion according to the National Venture Capital Association. This represents a more than $11 billion increase over just one year ago and it’s the highest amount since 2006. According to VentureBeat, the high volume of activity is unlikely to change any time soon because “It’s never been cheaper to start a company,” the publication notes. Another explanation for the growth in venture funding is the increase in liquidity events for these start ups, this according to the NVCA. Case and point — the IPO market is off to a hot start this year, raising more than $7 billion, already more than half of what was raised in 2017.
Growth in Mergers and Acquisitions: According to the tech news website Xconomy, changes in the U.S. tax code could result in major activity in mergers and acquisitions. Earlier this month, the publication noted “recent federal tax reforms may produce an influx of corporate capital—brought home from overseas accounts or saved due to lower corporate tax rates.” It notes this could result in a “corporate buying spree.” So far for 2018, global mergers and acquisitions have totaled $1.2 trillion in value – an increase of 67 percent year-over-year. In addition to the tax code revisions, Centerview Partners Holdings says the antitrust environment “seems favorable today.”
Divestitures Growth: Just as M&A activity is on the rise, so too are divestitures. And for this they can also thank changes to the U.S. tax code. According to the National Law Review, the new code lowered stated tax rates for C corporations from 35 percent to just 21 percent – the lowest in 70 years. With reduced taxes, corporates can take home more of the money gained from a divestiture. The NLR adds that with the U.S. mid-term elections coming up, and the potential for the Democrats to retake one or both houses of Congress, certain tax benefits could be up for modification. So it’s possible that executives see a small window of opportunity. This could explain why, according to a Deloitte survey, “some 70 percent of corporate development and private equity respondents say they plan to sell units or assets in 2018, up from 48 percent in the spring of 2016.”
With the volume of deals increasing, this presents an even greater need to have the strategy and tools in place to ensure a well-run deal in addition to successful implementation. In a recent survey, corporate development professionals said that the greatest internal management challenge is ensuring a successful acquisition integration. Not surprisingly, they site it as the most important factor in achieving a successful M&A transaction. “There’s no substitution for strong fundamentals in M&A strategy,” said Russell Thomson, managing partner of Deloitte’s U.S. Mergers and Acquisitions Services practice, in the WSJ. “Whether it’s effective due diligence, proper target identification and valuation, or post-deal integration, success is most typically realized when the strategy preceding all of it is well researched and executed.”
One such provider working to create successful post-merger integrations is SmartRoom. One of the leading virtual data room providers has partnered with IBM to deliver their M&A Accelerator solution to customers. The M&A Accelerator solves the complexities of deal management and post-merger integration. It’s an end-to-end solution that centralizes all the tools, spreadsheets and other resources required for a successful integration. The payoff of bringing all this information together is it accelerates the realization of a deal’s value, increases productivity, decreases risk and enhances compliance among any number of other efficiencies.
In 2018, there seems to be no shortage of activity to keep corporate development professionals very busy. But it’s also key that they make the most efficient use of their time. The IBM M&A Accelerator, when partnered with SmartRoom, can deliver precisely that.