Mergers and acquisitions activity among corporations appears to gaining momentum this year, according to a midyear report by PricewaterhouseCoopers, which foresees M&A activity accelerating in the second half of 2012.

Earlier in the year, uncertainty over the global economic environment and the volatile equity markets significantly slowed U.S. deal volume, the report acknowledged, but there was an uptick in activity in June, and an active deal pipeline now, indicating renewed momentum in the M&A market.

“Deal activity has continued at a measured pace over the last several quarters,” said PwC U.S. deals leader Martyn Curragh in a statement. “The uptick in deal value and recent climb in the rate of deals in the second quarter adds to growing levels of businesses looking to execute on transactions. During the first half of 2012, we’ve been extremely active in working with clients to prepare for a range of transactions. As deals continue to emerge from the backlog, we expect to see an increased level of activity in the second half of the year.”

The report noted that corporations are continuing to grow their cash reserves—with S&P 500 companies' combined cash totals reaching nearly $1.1 trillion as of March 2012—in addition to more readily available debt financing.  According to PwC, both factors provide additional flexibility for buyers and bode well for an uptick in activity.

There were a total of 3,870 transactions and $350 billion in disclosed deal value during the first half of 2012, compared to 4,606 M&A deals and $592 billion in the same period of 2011. In the second quarter of 2012, there was a considerable uptick in disclosed deal value with $218 billion and a total of 1,891 deals, demonstrating a 'high' for aggregate disclosed deal value in recent quarters. 

In comparison, there was $132 billion in disclosed value and a total of 1,979 deals in the first quarter of 2012. In June alone, total deal value reached $76 billion, the best month for M&A value since October 2011 when deal value totaled $88 billion.

Middle-market deals accounted for $123 billion, or 35 percent, of total deal value – a notable uptick for the first half of 2012. In terms of volume, middle-market transactions contributed nearly 98 percent of total deal activity in the first half with 3,788 deals. The competition for middle-market transactions is driving up the valuation of these deals, placing even greater importance on robust diligence of revenue growth and operational improvement opportunities, and development of the post-deal integration strategy earlier in deal preparation, according to PwC.

Divestiture activity is on the rise, accounting for nearly 28 percent of overall deal volume in the first half of 2012 versus 22 percent in the same period of 2011. As more companies look to reshape their businesses by divesting of "orphan" or non-strategic assets to focus on core revenue generators, sell-side diligence has played a more prominent role in preserving the seller’s deal value, expediting deal close and enhancing the potential for buyers to optimize financing.

Private equity firms are eagerly pursuing middle-market deals across a range of industries and exiting investments at a faster rate than in previous quarters.  Private equity buyers accounted for 17 percent of activity and $46 billion in the first half of 2012. While the majority of IPO activity and value has been largely driven by financial sponsors, private equity continues to enhance their prospects for exit by preparing for a variety of scenarios, according to PwC.

“The deal market continues to be extremely competitive, with experienced buyers scrutinizing every aspect of a potential asset,” said U.S. private equity leader Tim Hartnett. “They are asking for greater levels of financial and operational information to increase their visibility into a potential acquisition and well-prepared sellers who are able to meet those demands, are enhancing their prospects of getting a deal done expediently. Private equity funds have also significantly increased the number of exits over the first six months of the year, and are preserving optionality in readying their portfolio companies for multiple monetization possibilities—go public, be sold or secure additional debt financing.”

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