IntraLinks Exec: M&A Will Level Off Through Q3 2016

The latest IntraLinks Holdings Inc.’s IL Deal Flow Predictor (DFP) is out and it forecasts no growth in the total number of M&A deals to be announced globally through the first nine months of 2016 compared to the same period in 2015.

Matt Porzio, Vice President of M&A Strategy and Product Marketing at IntraLinks told Benzinga that despite the leveling off, “Corporate executives are facing challenges in finding ways to grow in a weak economy with low inflation, and the pressure to continue to do deals could outweigh nervousness.”

Benzinga’s conversation with Porzio covered the latest DFP report as well as the accompanying Sentiment Survey of more than 1,500 global M&A Professionals.

Benzinga: Which of the several scenarios mentioned in the report (China’s economy, oil and commodity prices, U.S. presidential race, etc.) would most likely have the biggest impact on M&A activity the rest of 2016?

Matt Porzio: We did kind of throw everything but the kitchen sink in there. When I look at all those factors, what they have in common is just general uncertainty and, as everyone knows, dealmakers hate uncertainty.

Of these, I think the energy market, oil volatility is probably the biggest global disruption. It has had an effect on energy M&A but also flowing into other sectors.

The rest of the list is more regionalized and that includes the U.S. Presidential elections.

What, if anything, surprised you from the last DFP to this one?

I was a little surprised at the bounce back related to Q2 announced deals. Clearly Q1 announced deals were slower, which we predicted. We did see an uptick, which will relate to deals announced over the next few months in our Q4.

It’s not a doom and gloom story. Maybe it’s a bit of a “return to normalcy” story. As far as the full year, I don’t think our data indicates that Q4 is going to be gangbusters. I think it will be in line with where we are now.

Is there any indication companies are shifting emphasis to organic growth (versus M&A)?

I don’t think there’s a broad-based view that people are going to stop M&A. I think, if anything, companies believe, along with organic growth, M&A needs to be a constant discipline.

I would say one of the reasons we’re seeing declines in, for example, North America, companies are saying with global uncertainty, maybe we can’t pay these multiples so let’s take a step back.

What would it take to reverse the decline in M&A activity in NA and LATAM? In other words, what should be happening that isn’t happening?

Results of the U.S. Presidential election could push things one way or the other. It could result in corporations ramping up M&A deals, trying to get out to market before things in Congress hamper them.

As far as LATAM is concerned until Brazil gets back on track, deal making is going to be suppressed in that region. That said, we actually are seeing year over year growth in Mexico in the non-energy sector. We saw growth in Argentina and Chile as well.

What did you learn about global attitude regarding the U.S. presidential race?

The question, directed at regional dealmakers, was designed to find out if they thought a Trump presidency would affect M&A in their region.

In EMEA, APAC and LATAM the negative was over 70%. A lot of that is their media’s interpretation of the sensationalism. It’s like a game of telephone. They think Donald Trump is going to shut down the border and that the U.S. is not going to be a global economic player.

In North America the negative on Trump was only 46%. That’s likely because dealmakers in North America have a better, more informed understanding of how American politics actually works.

What about thoughts on other candidates?

Bernie Sanders was 73% negative in North America. Respondents felt Bernie, with his comments about Wall Street in particular, would be a negative influence on M&A.

In Asia and in Europe when it comes to Clinton and Sanders the perception was “no impact” on M&A probably because we’ve had a Democratic administration for two terms, M&A has grown significantly, therefore if another Democrat goes in the White House, M&A should be fine.

The most positive impact any candidate received in any region was Hillary Clinton in EMEA where 56% believed she would have a positive impact on deal making. I believe that is also a reflection of the continuation of the current environment.

Overall, how would you sum up the M&A picture for the first 3 quarters of 2016?

The Americas are getting back to normalized levels of M&A. Latin America suffers due to Brazil. Europe and Asia continue to grow, albeit not at the pace they were before.

This is OK. I think we’re going to look back on 2016 and say this was another good year for M&A. It wasn’t the same from a value perspective, but overall with all the uncertainty, with all the things happening, it didn’t fall off a cliff.

To see the full DFP report go here.

At the time of this writing, Jim Probasco had no position in any mentioned securities.

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