Global interest rates are one of the several factors that can drive merger and acquisition activity in 2017. The London Interbank Offered Rate (LIBOR) is connected to the United States Federal Reserve Bank’s short-term rate, which plays a role in determining the debt financing rate. If the LIBOR rises, it would make it costly for companies to borrow money, leading to less being paid for acquisitions, however, a gradual rise would soften the material impact of rising rates.
In regards to the overall trends, it is expected that there will be consistent activity in the merger and acquisition (M&A) market due to companies looking to continue their organic growth. One of the benefits and driving factors is the relatively low cost of funding and positive reactions in stock prices for the acquiring companies. Another trend that can directly impact activity in the M&A space is the regulatory environment, as there are a number of key elections and potential changes in administrations globally, in addition to further effects of electoral and referendum outcomes from 2016. Another area to be watched are cross-border transactions due to companies looking for continued growth, and cross-border M&A activity would allow for companies to gain exposure to different markets and consumers. A large threat to continued M&A activity are valuations in the equity market, and the risk that acquiring companies will overpay for assets.
Two industry sectors which executives are expecting to actively pursue acquisitions for growth potential are those in consumer products and retail and diversified industrial products. Companies in the consumer product space are facing rising competition from more digitally adept competitors and direct-to-consumer brands which don’t require physical stores. Diversified industrial products are being transformed by technological advancements in existing lines of products and in the development and release of new products and services. Companies in this sector are likely looking to acquire these advancements by acquiring companies instead of through internal research and development, leading to the continued growth in merger and acquisition activity.