Large-scale strategic consolidations and megadeals have been a hallmark of recent years.
These will continue, however, there will be an increased emphasis on portfolio clarification.
“Companies are allocating M&A capital to businesses they see as essential to their core, and are more open to shedding those that are not,” says Tom Miles, Head of M&A for the Americas. “We’re seeing really large companies becoming more efficient, focused, smaller companies.
I expect large-cap companies to continue consolidating core businesses, but wouldn’t be surprised to see those actions more often followed by spin-offs and divestitures of noncore businesses, as a way to refocus and provide greater corporate clarity for investors.”
Meanwhile, periods of volatility and uncertainty can heighten emphasis on accountability around transactions, according to Tomer Regev, Co-Head of Corporate Finance and Transaction Strategies.
“There will continue to be a laser focus on return on invested capital as a key metric to dealmaking,” Regev says.
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“Especially in an environment where every dollar of capital gets a lot more scrutiny, the cost of capital and return on investment will likely be even more important, as we get deeper into 2019.”
Acquirers are looking more carefully at target earnings relative to the price of a deal, Regev adds, and “you want return on capital invested in a transaction to approach your cost of capital as soon as possible, generally between three to four years.”