Predicting the future is never easy – in fact predictions are frequently wrong.  The best we can do is look at what we know to be true today and make some assumptions about the future in hopes we will catch a glimpse of what is to come.  Assessing the future climate of M&A is no different – it is a guess at best.

Here is what we do know.  Companies, in general, have an abundance of cash and the debt markets are readily accessible.  In addition, financing multiples have risen sharply in the last year.  Corporate acquisition departments are feeling the pressure to demonstrate growth through acquisitions.  Private equity groups still have many untapped financial resources that need to be utilized.

Compliance issues, which have certainly been a distraction, are not going away, but they appear to at least be under control with respect to implementation of procedures and systems.  This allows more focus to be placed on getting deals done.

According to a February report by Robert Baird & Co., 2004 was the most active year since 2000 for M&A.  9,021 U.S. transactions were completed (up from 8,157 in 2004) with a total value of 902.6 billion (up from 601.8 billion in 2004). 

What do we expect?  We look for M&A to continue the growth it is experiencing so far in the first quarter through all deal sizes.  According to a recent study by PriceWaterhouseCoopers, the primary deal drivers for this year will be cost and growth.  How can cost structure be improved through an acquisition and equally important – what is the growth potential?  Zero growth potential equal a reduced chance of getting the deal completed.

Other factors influencing deal activity will probably be:  the continued pressure from shareholders to boost stagnant growth, non-U.S. buyers, and favorable financing rates.

Shareholders continue to demand growth and acquisitions continue to be the most expeditious route to increased growth.  Overseas buyers should see the U.S. as ripe for opportunity given a weakened dollar.  Even with some additional rate increases in 2005, interest rates remain very favorable for the deal market.

There continues to be more buyers chasing fewer quality deals.  This, of course, makes for a sellers market.  Could now be the right time to sell your company?  Needless to say there are many other factors to consider, but clearly there are many arrows pointing in the right direction creating a very favorable environment for going to market.  In short, momentum is on the rise!

Mark Jordan is Managing Partner of Vercor, a national mergers and acquisitions firm.  He also holds an MBA, BS in Business Administration, and numerous designations.  He can be reached at 770-522-0300 or mark@vercoradvisor.com.

Copyright © 2004, Mark T. Jordan. All rights reserved. Permission granted to reprint this article on your website or in your newsletter without alteration if you include this copyright statement.