Corporate Insights Tying the knot:
M&A as a path to value creation

Tying the knot:
M&A as a path to value creation

(4th Quarter 2016)

Themes

  • M&A activity appears less robust than in prior cycles 
  • Corporates continue to funnel capital away from growth
  • A growth strategy that includes M&A tends to outperform
  • Conclusion: M&A can jump-start growth and create value

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Introduction

The last six months of 2016 have borne witness to some truly tumultuous, market-shaking events, most notably among them the U.K. decision to leave the European Union, the outcome of the U.S. presidential election, the persistence of a low-growth business environment, policy rates around the world in ultra-low or even negative territory and the rise in both the value of the U.S. dollar and U.S. bond yields.

For many corporates – particularly in the U.S. and Europe – the significant uncertainty caused by these events interrupted corporate decision making. Companies have become more hesitant to take action and we have seen examples of companies holding back on merger and acquisition (M&A) activity or strategic growth initiatives as they awaited the outcomes of those votes and some visibility about the ultimate direction of the equity and debt markets.

And yet a cursory look at some of the M&A deal data that financial and legal advisors often cite seems to contradict that point. It seems that we are approaching another high point in M&A activity during the course of 2016, similar to prior peaks that we saw in 1996-2000 and again in 2003-2007. The benign financing environment, persistently sluggish organic growth rates and strong equity markets may in fact present a unique opportunity for M&A, after all.

In this, the fifth in our ongoing Credit Suisse Corporate Insights series, we close out 2016 by looking at current trends in capital deployment, the underlying financing environment and the context of current market valuations. All in an effort to tease out what we see as a unique and perhaps surprising recognition that growth through M&A can be value creating.