PwC forecasts ‘very robust’ second half of 2012(2)

A rise in merger and acquisition activity in June, combined with a strong pipeline of deals, should lead to an active second half of the year for US private equity, according to a PwC study.

M&A deal value last month reached $76 billion, the highest level since October 2011 when deal value totaled $88 billion.

“We believe that once fall comes, this activity is going to result in deals closing,” Tim Hartnett, US private equity leader at PwC, told Private Equity International. “You'll always have a little bit of a slowdown in July and August, but a very robust September, October, November and December would not be shocking based on the amount of deals that are in the [pipeline] that are being looked at.”

Sectors that are expected to generate a significant amount of activity include healthcare and pharmaceuticals, financial services and technology, according to the study.

“Now that one pillar of uncertainty has been addressed by the Supreme Court’s recent ruling to uphold key components of the Affordable Care Act, PwC expects deal momentum to accelerate throughout the remainder of 2012,” the report said. In the financial services sector, divestitures are expected to drive the majority of deals during the second half of 2012, with “favourable credit markets for leveraged buyouts,” helping increase activity from financial buyers.

While the number of US private equity M&A transactions remained relatively stable during the first half of 2012 compared to the same period last year, the combined value of deals fell from $130 billion to $46 billion.

“My estimation is that there are much, much fewer mega private equity deals,” Hartnett said. “I feel very strongly that it is not declining prices…Those mega deals are just becoming few and far between.”

While the expectation of higher taxes in the US next year should help motivate sellers to transact before the end of the year, Hartnett did not view the perception of rising taxes as a primary driver of deals toward year end.

“Every few years there is one of those macro events that everybody thinks is going to drive [activity],” he said. “There are a lot of good reasons to get deals done in December [related to] operational and financial reporting, so that's a normal cyclicality of our business.”