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Oct 18, 2013

The Hottest Industries In Today's M&A

Featuring Corey Massella

It's no secret that over the last four years, both domestic and international investors held their money in anticipation of a stabilizing economy. This time-out created a lot of pent-up demand from buyers who waited patiently on the sidelines for the outcome of the presidential election, congressional decisions on tax rates, and the direction of the economy.

Now that things are on the uptick, research indicates that businesses and entrepreneurs are showing interest in merging or acquiring other companies. Other factors that play a role in the increase of M&A activity include diversifying portfolios in advance of future economic downturns, enabling companies to remain flexible, expanding current service offerings, and acquiring businesses in complementary industries. Additionally, targets will be companies in mature, niche industries that can be “rolled up” or consolidated into one entity that creates benefits from economies of scale and a stronger market-share.

Some of the hottest industries stirring the M&A pot had been most hurt by the economy as sources of capital had to scale back. As the economy improved, investors, funders and companies proactively looked for companies that have the products and intellectual property to refill their pipelines. So far, the majority of M&A activity is coming from the following sectors:

Tech — Technology is a major player for M&A activity, especially in light of the outpouring of funding into NYC ventures and a movement towards IPOs. Software development, analytical, cloud-based, cybersecurity and financial analysis products are among the groups striking a particular chord with investors.

Biotech and life sciences — The health care industry is being squeezed from every direction causing cost-cutting in all areas of the business. Additionally, integration of technology is rapidly being deployed to items as small as chips or pill bottles. The pharmaceutical sector is not generating as much innovation anymore and is looking to minimize R&D costs via acquisitions and mergers. Pharma companies are willing to pay more with early stage ventures within the private sector.

Private equity firms, venture capital, sponsors and family offices — Private equity funds that are maturing toward the end of their life cycle need to sell their portfolio companies and start new funds. This event is forcing private equity funds to deploy capital and seek new ventures in their early stages.

Real Estate — International investors are playing a big role in reviving this industry. Continents like Europe and Asia have been in the game and are targeting multi-family units to diversify their portfolios. Additionally, the currency exchange rates are making the cost of the investments very appealing, which will give investors the ability to diversify their exposure to currency markets.

As more and more companies re-engage with M&A, it means more competition and a desire to finalize deals quickly. Business owners that have played out M&A scenarios, done the critical thinking and have an M&A plan in place will be the best prepared to act when the time is right.

Corey Massella, CPA, is a partner with the accounting and business consulting firm Citrin Cooperman, and is leader of the firm’s SEC Solutions Group. Based in the firm's New York office, he brings more than 30 years of experience in counseling entrepreneurs in financial and business strategies, including structuring, negotiating and executing mergers and acquisitions, completing due diligence, and preparing companies for public offerings. He can be reached at cmassella@citrincooperman.com or at (212) 697-1000.