Regulatory change, market disruption, technology, consolidation and growth: 2016 is shaping up to be quite an exciting market for anyone watching mergers and acquisitions. While 2015 was a wild ride with record-setting numbers of globe-spanning mergers and acquisitions in beer, food, drugs and even the complete meltdown of the Greek economy and an oil bust, 2016 may be poised to bring a more conservative but still exciting year, at least domestically.
In the U.S., there is a fair amount of uncertainty around the election, and the possibility of a Republican in office after 12 years of Democratic rule has many businesses taking a “wait and see” approach. Regardless of whether there is a political overthrow of the current regime, there will be change introduced to the market, which is expected to stay choppy through November.
We are well versed in hearing how mass media companies such as Time-Warner and Disney gobble up new media companies – at least that is how it has always worked in the past. In 2016, start looking for this major acquisition scenario in reverse: when a new media juggernaut looks for a staid and solid old-world company to acquire. Organizations such as BuzzFeed, Vox Media and Slate are flush with venture capital and ready to roll. Expect that the trend will expand to publishing houses and TV properties as well, but probably not until 2017 and beyond.
Big Healthcare and Pharma
The pharmaceutical industry had a banner year in 2015 with mergers and acquisitions topping $221 billion in the first half of 2015 alone. Life sciences companies bolstered their business significantly through acquisitions, with an average of one per day of varying sizes. The availability of cheap financing helped play a part in the feeding frenzy, as rates in the U.S. remained low and the M&A activity soared. The transfer of assets outside the United States to shield companies from tax liabilities fueled the mergers market as well. The patent cliff that many large pharmaceutical companies found themselves on as lucrative patents expire caused yet another wave of acquisitions to help these old money companies fill the pipeline with fresh R&D.
However, all of the activity in 2015 has a downside – smaller companies are watching the market and testing the waters to see what all the fuss is about, and they are upping their valuations accordingly. This could make it more challenging for acquisitions to occur and the competition for solid companies to increase, slowing down some deals.
Technology acquisitions – one of the favorite sectors for analysts to put on their futuristic goggles and consider, and arguably the most volatile. While some dreamers want to see Apple acquire Tesla, a deal that would change the face of technology on several fronts – most notably by bringing Elon Musk to Apple – the man who may be the only individual worthy of filling the shoes of Apple’s chief technologist, futurist and heir-in-waiting. In addition, Apple gets Tesla’s battery tech for their purported new Apple car while pushing Apple ever closer to that elusive $1 trillion market valuation. Already poised to shatter their $700 billion market cap for 2015, Apple’s continued domination of the smartphone market share and growth in the rest of the world puts it in the perfect spot to make that kind of pricey acquisition.
Everyone seems to want fresh, frozen, and fully cooked food and meals delivered to their door – in theory. In practice, there are serious problems with online food ordering and delivery, and while many raced to enter this segment in 2015, the proliferation means that only the strong will survive. Startups with an excellent business model and solid tech will be acquired by large industry-leaders such as Albertsons, Kroger and Walmart who are looking for add-on pieces to their already-robust online and physical presence. The “final mile” problem continues to be an issue as companies figure out how to keep cold food cold on your porch, especially in warmer climates. Expect acquisitions of technology companies as well as transportation and packaging options.
The energy industry has long been searching for a panacea to rising natural fuel costs and their negative impact on the environment. Nuclear fusion is acknowledged by many industry leaders to be the most viable solution, but creating a stable and sustainable fusion process that can be commercialized is the challenge. Several billionaires are currently funding smaller-scale projects in the private sector, so expect a large step forward in the near future which will cause shock waves across the world as others scramble to replicate results and revamp energy pathways.
Hoverboards, which more closely resemble motorized skateboards, are one of the tech breakthroughs of 2015 but the trend was mainstreamed mostly because of celebrity endorsements from Jimmy Fallon, Justin Bieber and others. A huge range of manufacturers is producing these fun toys, and some will certainly rise above the noise and start acquiring their smaller brethren. Self-driving cars are also experiencing a boost of public interest, and larger companies like GM will start acquiring smaller tech companies who make specific promising components in an effort to keep the concept in-house.
Science and Innovation
While many industries are looking to acquire specific pieces of science and innovation companies, this may be the most interesting sector from a growth perspective. Mergers of tiny start-ups could fuel an organization large enough to be interesting on a global level. Small companies are critical to overall growth of the global ecosystem as many of the mid-level organizations have already fallen prey to takeovers, so some of the higher risk but potentially transformative technology companies will be ripe for the plucking. Innovation and research will prevail with extended support from larger organizations in a flurry of out-licensing activities – where big companies share the risk for development with other firms. As collaboration between organizations of all sizes remains the way for technology to speed to market, mergers and acquisitions in these sectors will continue to expand.
While the overall trend for mergers and expansions may be down from the feeding frenzy of 2015, there will be plenty of movement to keep the market interested – and growing.