Energy, metals and mining, and telecommunications were among the top industries for merger and acquisition (M&A) activity in 2011 – with an emphasis on larger transactions than in the recent past –according to a new report from RGL Forensics. The Denver-based forensic accounting firm reports that mergers and acquisitions in the United States have been on the rise since 2010, and that 2012 is likely to be another solid year for deals.

Matt Morris, director of Corporate Advisory Services for RGL, said 2010 represented a significant rebound in U.S. M&A activity and this strong growth continued through 2011, particularly in certain commodity markets. Having shored up their balance sheets and lined up low-cost capital, many companies shifted their focus to looking for growth through acquisition. A continuing stabilization of the U.S. economy also contributed to this activity and provides generally positive signs for 2012.

Examples of high-profile deals in the three industry sectors include the following;

In energy, at the beginning of 2011, North Carolina-based Duke Energy Corporation offered $13.7 billion for Progress Energy, Inc., to create the largest utility company in the United States.

In telecommunications, last April, Louisiana-based Century Link and Colorado-based Qwest Communications completed a $22 billion merger, forming the third-largest telco in the United States.  

In mining, Ohio-based Cliffs Natural Resources acquired Quebec-based Consolidated Thompson Iron Mines for $4.6 billion last February, which was heralded as a way to build a relationship with China’s third-largest steelmaker (Wuhan Iron and Steel of China, which owns about 19 percent of the company) and achieve millions of dollars in cost savings at the two companies’ nearby operations.

RGL points out that, while the uptick in activity and market valuations have demonstrated the willingness of capital markets to provide financing, there is an increased focus on a deeper, more-nuanced understanding of target companies.

“The good news is that capital continues to be deployed in an economy hungry for investment,” said Morris. “As we're seeing the credit markets gyrate, debt and equity investors are increasingly concerned with the quality and resourcefulness of front-end analysis and due diligence. Outside experts of all types – [including] forensic accountants, valuation professionals, and strategy authorities – are being retained to analyze and determine the true value and risk of potential M&A targets.”

Morris predicts a flat to moderately higher M&A market in the United States for 2012. “Financial experts are still biased towards conservatism, but capital momentum has returned from the nadir of 2008 to 2009,” he says, adding, “As leveraged loan markets continue their uncertain path, private equity transactions will likely remain inconsistent, with a trend toward smaller deals, with the larger transactions reflecting the vertical or horizontal ambitions of strategic buyers.”

However, with continued volatility in the European market, international deals are showing increasing signs of risk. This uncertainty will alter the valuations for foreign companies – and may discourage international M&A activity and US transaction activity, if ripple effects are felt. In addition, international investors are looking to minimize exposure to Foreign Corrupt Practices Act (FCPA) enforcement, further slowing the growth in cross-border deals.

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