Corporate deal-making ready to take off next year
Companies looking to put cash to work could help boost the climate for deal-marking in 2014.
Despite bargain-basement interest rates, mergers and acquisitions activity has been under par for much of the time since the financial crisis exploded in 2008, with companies either hoarded cash or used it to buy back shares or issue dividends.
But the market has picked up momentum in the latter part of the year, providing encouragement that M&A could see a relatively strong 2014.
"All the fundamentals have been in place over the last two or three years to set up a strong deal market," said Bryan McLaughlin, a partner in PricewaterhouseCoopers' deals practice. "Cash will be put to work as confidence increases."
The outlook, part of the firm's buoyant forecast for the year ahead, is predicated on economic growth that will cause companies to get deals done.
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Corporate cash on the balance sheet rose to $1.92 trillion in the third quarter, but it's been slow to be put to work.
"Confidence is driven by CEOs and boards. Their attitude is driven by the economy," McLaughlin said. "What you're seeing is a stabilization of the economy and growth in the U.S. People are getting comfortable with where we're at from an economic growth perspective."
Corporate America is coming off a topsy-turvy year that has seen $944 billion worth of deal volume.
Deals were strong in the first quarter but tailed off as as the year progressed. Worries arose in May over a sudden spike in interest rates that would come with a tightening Federal Reserve monetary policy.
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As the year progressed, the financial markets grew somewhat more comfortable with the idea of rising rates as long as it happened in a controlled manner and came about because of economic growth.
The first half of the year averaged 808 deals a month, a pace that picked up by more than 10 percent in the second half, which averaged 886 deals, according to PwC.
The first half started off at a rapid pace, with February the highest single month since October 2011. The momentum hit a speed bump in May when Fed Chairman Ben Bernanke suggested the central bank could tighten monetary conditions sooner than expected.
Once that fear passed, momentum picked up, and McLaughlin believes that will continue to be the case.
"If there's a surprise or shock to the market and it leads to higher interest rates or a more challenging availability of credit, that can hurt the markets," he said. "But I think the way the Fed has it set up, there's visibility and a lot of discussion about it. There's a lot of awareness, and interest rates have slowly risen versus the leap they made back in May, which did hurt the market and slowed things down a bit."
PwC's confidence is shared around the banking industry.
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Goldman Sachs reported that this week's Financial Services Conference showed "companies were consistent in their belief that tapering could drive improved capital market activity, and most were bullish on the M&A outlook."
PwC believes the most active sectors will be health, retail and consumer, technology, real estate and telecommunications.
One new trend in M&A that should become more prevalent in 2014 is the introduction of social media.
More than 55 percent of those involved in M&A deals reported using an online deal network, with sites such as LinkedIn and Twitter "an integrated and successful component of deal networking, broadly used across the industry," according to a report from Intralinks, a business collaboration service.
"Deal sourcing platforms are rapidly becoming mainstream, offering a low cost, long reach way of locating target counterparties," the firm said in a report. "Dealmakers should consider deal sourcing networks and social platforms as an effective way of maximizing deal exposure and a proven way to close a deal."
—By CNBC's Jeff Cox. Follow him on Twitter @JeffCoxCNBCcom.