State of the M&A Market: “Hot Industries” an Oxymoron in 2013?

I guess it depends on how you classify “hot industries”.  Hot in 2013 would be better depicted as cool with a touch of lukewarm, tepid at best.  Of the ten industries defined and tracked by PCE, nine saw a drop in transaction volume during the year.  The sole gainer, consumer discretionary, improved upon its 2012 volume by a mere 2.0%.

Despite the meager performance across the board during the year, a more lengthy analysis proves the cream does rise to the top.  Over the past ten years, healthcare was the hot industry with average volume growth of 17.8% per year with a whopping 75.4% overall increase.  The segment grew from 784 transactions in 2004 to 1,375 in 2013, largely brewed by an ever-changing business & regulatory environment.

Rounding out the top performing industries over the last ten years were consumer discretionary and general industrial with average rise of 7.1% and 8.0%, respectively.  Overall change during the period was 67.4% for consumer discretionary and 61.9% for general industrial.


Market Activity

M&A activity declined during the fourth quarter of 2013, ending the year on a downward slide.  Transaction volume in 4Q13 was just north of 2,000 deals, which was a fraction of an active 4Q12 with 37% fewer transactions.  On a rolling 12-month basis through 4Q13, total transaction volume was approximately 8,100 deals, compared to the year prior which was more than 10,000.

Despite floundering volume, average value for those transactions that disclosed financial data (~ 28% of transaction volume) was a ray of sunlight.  The average value of transactions involving a PE buyer rallied from $257 million to $488 million, while strategic purchases improved from $234 million to $269 million on a rolling 12-month basis through 4Q13, compared to 4Q12.  The wide difference in average transaction values continues a trend which started in the second quarter of 2013.  This could be the result of strategic buyers representing approximately 90% of all transactions, and thereby the strategic average size being less affected by large transactions.

Click here for a detailed chart of the rolling 12-month history of PE and strategic transaction volume and dollar values by quarter for the past three years.

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Michael Poole

Investment Banking
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