Increased cash, confidence and consolidation will fuel M&A recovery, says Hogan Lovells

Record levels of cash on balance sheets, and increasing boardroom confidence, will fuel mergers and acquisitions (M&A) growth, according to a report from Hogan Lovells.

Hogan Lovells’ latest Evolution Report examines the conditions required to reignite the global economy, through a survey of 240 board-level members at global companies.

The report shows cautious optimism, coupled with decreasing concern about market weakness and volatility, which could be the catalyst for long-awaited growth.

Global corporates are now holding record levels of cash on their balance sheets, at $5.6tn (£3.5tn) — almost double what they held a decade ago.

Combined with a global equity market rally year on year on all major indices, and a high water mark in debt issuance, with September 2013 a record month for investment grade debt, the firm says that market conditions are now ripe for M&A resurgence, with M&A deals by value having consistently risen in each quarter of 2013.    

Despite this window of opportunity, boards remain concerned about the regulatory landscape and its potential to disrupt growth; six in 10 board executives see regulation as the biggest concern over the next two years, with more than half expecting it to be at the top of their agenda in the longer term (three to five years).

Board members expect consolidation to be the main driver behind M&A investment (69 per cent), while 63 per cent of respondents expect to use M&A as a means to increase market share in existing markets.

Nonetheless, appetite for distressed M&A, and expansion into foreign markets, is expected to spur activity, with more than half of respondents identifying this as an ambition in the short term, signifying a potential step change in M&A transactions in the year ahead.

Hogan Lovells undertook this research with FT Remark, interviewing 240 senior decision makers from public companies across the globe. Respondents were drawn from six key industries in equal proportions: consumer, energy, financial institutions, life sciences, real estate and TMT. The interviews were completed in August 2013.