Results from Dykema’s 16th Annual M&A Outlook Survey are the most optimistic for mergers and acquisitions in the history of the survey despite the COVID-19 pandemic and just a year after the opposite expectations for M&A. Dykema is a national law firm based in Detroit.
Of the respondents to the survey, 71 percent expect the M&A market will strengthen over the next 12 months, up from 33 percent in 2019, and 87 percent believe M&A activity will increase in the same timeframe.
The report says the rise in optimism reflects market conditions and a belief from respondents that the worst is behind them. Both financial and strategic buyers see opportunity. About 60 percent of respondents say their outlook for the U.S. economy is positive over the next 12 months.
“Despite COVID-19 and current economic uncertainties, dealmakers see increasing opportunities for completing deals in the next 12 months,” says Thomas Vaughn, co-leader of Dykema’s mergers and acquisitions practice. “The pandemic will continue to influence the deal market over the coming year, but there is a surprising level of optimism among dealmakers that its impact on M&A will wane over time. With 72 percent of dealmakers expecting to close a deal in the next year, whether you’re a strategic or financial-focused buyer or a seller hoping to cash out, there are opportunities in the M&A market for the right deal.”
The survey polled senior executives and advisers across the country involved in M&A activity. Nearly twice as many respondents felt President Donald Trump’s reelection would be positive for M&A (61 percent) compared to Joe Biden’s election (34 percent).
About 64 percent see Republican control of both houses of Congress as the most favorable outcome for M&A, while 32 percent view Democratic control of both houses as most positive.
Despite the optimism, 63 percent of respondents ranked COVID-19 among the three greatest threats. The other two top concerns were Democrat wins for the presidency (48 percent) and Congress (46 percent).
Respondents were divided on what would be the single greatest driver of U.S. M&A activity over the next 12 months, with U.S. economic conditions (22 percent), favorable interest rates (22 percent), and availability of capital (20 percent) being the top answers.
Strategic U.S. buyers saw a resurgence in this year’s survey, ranking at the top of the list of most influential buyers for the first time since 2017. Financial U.S. buyers followed closely behind.
Respondents embraced government programs to help businesses survive COVID-19 restrictions and their fallout. The Paycheck Protection Program proved most popular, with 73 percent of respondents saying they accepted the loans. About 8 percent of respondents who worked on deals involving the program reported failing to close the deal due to the loan, a sign that dealmakers were able to navigate potential hurdles involving the outstanding loans.
Respondents predict the following sectors, in order, will see the most M&A activity in the next year: automotive, health care, technology, consumer products, and financial services. Education jumped to No. 6 in this year’s survey, up nine spots from 2019. Energy dropped from third in 2019 to eighth.
Europe ranked as the top destination for inbound and outbound U.S. M&A activity. Central/South America and China ranked second and third for inbound activity. They were flipped for outbound.
The full report is available here.