Solving The Value Equation : 2013 MA Forecast Landscape

We anticipate M&A activity to be quite robust over the next year. Mergers and acquisitions in the software, information technology and BPO services continued at a fast clip in 2012, as the number of deals rose over 2011 levels.

Overall, acquirers have been focusing on complementary acquisitions, with the majority of transactions less than $100M.

Looking ahead to 2013, M&A deal transactions will primarily include #1. strategics seeking complimentary assets/capabilities, and #2. distressed/stagnant small to medium businesses without access to capital (i.e.e those stuck in the growth capital liquidity trap). There is a shortage of capital for those companies with less than $10 million in EBITDA, but a general surplus for companies with $10 million in EBITDA or more. Further, rising complexities and costs are causing market bifurcation and the thinning of middle class of businesses.

2013 Useful Capital landscape and options:

Credit facilities will be almost exclusively asset based lending only.
Venture continues to ride the wave of “Consumerism.” The types of businesses that most venture capitalists plan to invest in the year focus on information technology and health or biotech.
Private Equity Mezzanine lenders remain eager to put capital to work with transaction structure and pricing relatively flexible.
Access to growth capital for branded sector leaders only as PEGs still suffer from weak returns from 2005 to 2012 and combined with the difficult economic climate has caused many anemic assets to under perform.

M&A corporate development will continue to be strong although deal valuations will be limited and capped. The M&A outlook will remain strong, including deal count volume as cash-rich strategics augment growth and capabilities.

Strategics Seeking Growth. Conditions are good for an increase in strategic acquisitions in 2013. U.S. corporations have built up immense balance sheet firepower, with more than $2 trillion of aggregate cash currently earning a minimal return. Given the sluggish economic outlook, M&A can be an effective tool for lifting the top line and generating margin improvement through synergies following an extended period of cost controls.
Private Equity Financial Sponsors will be focused on selling assets due to pressure to put committed capital to work and to generate exits. Financial sponsors evaluating platform acquisitions and add-on deals continue to have in excess of $400 billion in uninvested capital that needs to be deployed as well as access to debt at reasonable terms. At the same time, achieving fully valued realizations is a high priority for private equity firms with aging portfolio companies.

2013 Useful Capital Investment Focus Areas for Technology Software & BPO Services:

Technology Software Applications for customer profitability, data analytics, employee lifecycle management including performance and credentialing, and industry specific solutions.