Companies have got their M&A mojo back but are more likely to look domestically for deals, while technology is smoothing the M&A process. Overall, more deals are likely to get done in 2018, according to this report on M&A trends 2018 by Deloitte.

More cash to splash

The report, based on a survey of more than 1,000 company executives, found that corporations and private equity firms expect an increase in merger and acquisition (M&A) activity in 2018, both in the number of deals and the size of those transactions. This suggests that companies are overcoming their concerns about the economy, political and regulatory uncertainty, market volatility and valuations, which hampered M&A activity in 2017. The responses also suggest that companies now have better cash levels and therefore have more capital to spend on acquisitions. At the same time, US countries are less likely to look to invest outside the US, with a knock-on effect in some markets. As a result, there is an average of 26 per cent less interest in M&A deals with companies in China, Japan, Brazil, Italy and Spain.

M&A trends: report's key findings

Some of the key findings of Deloitte's report include:

• Almost two-thirds of respondents (63 per cent) are going beyond the spreadsheet and using new M&A technology tools to assist with reporting and integration. Respondents say the tools help reduce conflicts, costs, and time, which are likely to be key factors in making more deals work.
• Technology acquisition is the new no. 1 driver of M&A pursuits, ahead of expanding customer bases in existing markets, or adding to products or services. Talent acquisition continues to trend upward as a motivation for M&A strategies. In a new question in this year’s survey, 12 per cent of respondents cite digital strategy as the driving force behind M&A deals for the coming year; combined, acquiring technology or a digital strategy accounted for about a third of all deals being pursued.
• Corporate executives and private equity investors from the largest firms – with revenues and investments in excess of $1 billion – are considerably more confident than their smaller counterparts that they will engage in bigger deals in the coming year.
• Only a handful of corporate respondents (12 per cent) say that a majority of their M&A deals are not generating the expected return on investment. This is down from just under 40 per cent in spring 2016. An even slimmer number of private equity survey respondents (6 per cent) say that a majority of their deals are missing the mark – this is consistent with what respondents reported a year ago and continues the downward trend from a high of 54 per cent back in spring 2016.
• Divestitures should persist as a major focus in 2018. Seventy per cent of survey respondents plan to shed businesses next year – driven by financing needs and strategy shifts.
• Industry and sector convergence continue to be major themes, with a strong bias toward vertical integration. Top industries that respondents predicted to experience convergence are life sciences and health care, technology, and financial services.