In the year ahead, Investment Management executives will be eyeing mergers and acquisitions to grow their customer base and expand geographic reach, according to KPMG LLP’s annual M&A survey: “U.S. Executives on M&A: Full Speed Ahead in 2016.”
79% of Investment Management executives polled say they intend to initiate at least one acquisition in 2016, up from 63% in last year’s KPMG survey. Aside from expanding their customer base and geographic reach, other key M&A drivers were enhancing intellectual property and acquiring new technologies.
“Competition is fierce and even with market volatility we’re seeing favourable asset prices, surplus cash flow and market share consolidation as factors that are helping to drive the increase in M&A activity,” said Sean McKee, lead partner, Public Investment Management. “These firms need to stay aggressive to add market share so, barring a significant economic shock that would force them to leave the cash reserves on the sidelines, acquisition activity should remain hot.”
By far, the United States continues to be the top country to invest in, according to 77% of the executives surveyed, up from 67% last year. A third of the respondents (32%) also intend to invest in Western Europe. Asia (excluding China and India) and North America (excluding the U.S.) came in at 15% as other geographic areas under consideration.
While the corporate leaders see more aggressive M&A growth ahead, they also cited a number of challenges the Financial Services sector will face this year in deal making including: valuation disparities between buyers and sellers, uncertainty in the regulatory environment and increased government oversight, and the challenge of identifying suitable targets.
Asked to identify the most important factors in evaluating an acquisition target, 66% of the executives said it must be a strategic fit, 66% pointed to potential growth, while 38% said valuation and investment return.