M&Aactivity has slowed in 2016, but it hasn't completely stopped.
Inthe U.S., the total value of announced M&A deals is on pace to drop 29%year over year in 2016, according to Greenhill & Co. Inc.'s from the Sept. 27JMP Securities financial services and real estate conference. The drop indealmaking negatively impacts investment banks that generate revenue fromadvising on the transactions.
However,financial services executives said companies are still seeing the benefits ofacquisitions. For instance, many strategic buyers are turning to consolidationfor expansion because organic growth has been anemic, Vice Chairman RickLeaman said during the JMP event.
has also foundthat companies are combating the slow growth environment with acquisitions. Atthe JMP event, KKR CFO Bill Janetschek said strategic activity has been robust recently.Janetschek added that he believes his company has exited more investmentsthrough strategic sales in 2016 than it has in the past three years.
Still,there is no denying that M&A is down in 2016. Chairman and CEOPaul Taubman said he expected the drop in activity because 2015 saw the totalvalue of announced M&A reachan all-time high. Taubman noted that announcements in 2015 were about 20% to25% above the long-term trend.
"Whatyou've seen a little bit in 2016 is a reversion to the mean," he saidduring the JMP event.
Taubmanalso expects to see a small contraction in M&A during 2017. He noted thatdeals beget deals because when one company announces a transaction, competitorsare more apt to pursue acquisitions in an effort keep pace. However, there isless momentum for those types of deals because M&A activity has dropped in2016, he said.
Taubmanadded that the pending change in the U.S. presidency will likely create aheadwind for M&A. He noted that a number of transactions have been blockedrecently because of antitrust concerns, and in 2017 potential acquirers willtake a pause to assess the new Cabinet before embarking on transformationaltransactions.
Sofar, Greenhill CEO Scott Bok said he hasn't heard that the U.S. election iscreating much impediment to dealmaking. Bok said there is a "quietconsensus" in the marketplace that believes Hillary Clinton will becomepresident, but Republicans will control at least one chamber of Congress. Thatoutcome would keep Washington in a stalemate situation, and from a businessstandpoint that is "probably not a terrible outcome," Bok at the JMP event.
IfDonald Trump becomes president, executives would initially worry aboutuncertainty and downside scenarios, Bok said. But they would soon realize that anychange would end up being more gradual as opposed to something disruptive, headded.
Overall,Bok gave a lukewarm assessment for M&A. He noted that the market has seenperiods of volatility, such as one in the first quarter, that put deals onhold. However, he said activity has been rebounding from those stress points.
"Iwould say we've been in a good, but not great M&A environment," Bok said.