According to Thomson Reuters, the value of announced M&A transactions during the first quarter of 2012 was down 15 per cent from the fourth quarter of 2011. Despite the slow start, there are some encouraging signs as the uneasiness appears to be gradually waning and being replaced by modest confidence in the deal markets.
The authors discuss some factors and trends they foresee during the remainder of 2012, assuming relatively stable macroeconomic and geopolitical climates. They expect that deal cycles may be longer due to intense negotiations on key transaction terms, because no deal participant can afford to be exposed in the current environment. While strategic M&A has been driving the market for the last several quarters, they say that private equity buyers are more than ready to get back in the game. Many funds are seeking to deploy uncommitted capital and take advantage of favorable debt financing. Buyers, particularly private equity sponsors, are mindful of the need for downside protection in the event they cannot close, and they continue to require reverse termination fee structures or damages caps.
The intellectual property wars show no sign of abating. More than ever, companies need intellectual property assets for use as swords, shields and bargaining chips. As a result, companies with intellectual property that can be used defensively in other portfolios will have a seller’s market in which to monetize it. This is especially true of patents.