Expectations for the national merger and acquisition market have leveled out and show some notes of pessimism about the broader economy, according to Dykema’s 15th Annual M&A Outlook Survey. Dykema is a Detroit-based law firm.
About 33 percent of respondents are optimistic about the U.S. M&A outlook over the next 12 months. This is down from 65 percent in the 2018 survey, which was taken months after the Tax Cuts and Jobs Act passed. This year, M&A optimism levels reverted to pre-2018 results.
“Where U.S. M&A activity and the broader economy are headed appears to depend on whom you ask,” says Thomas Vaughn, co-leader of Dykema’s mergers and acquisitions practice. “About one-third of our respondents this year feel bullish, bearish, or neutral both on the M&A outlook and the broader economy. That’s unusual, but it also means that two-thirds of respondents still believe things will improve or stay the same for M&A activity and for the broader economy.”
The survey polled senior executives and advisers across the nation – CEOs, CFOs, owners, managing directors, and other professionals involved in M&A activity. Respondents were split on the possibility of an economic downturn, with about half of respondents saying a recession in the next 12 months was at least somewhat likely. About 24 percent were neutral, and 27 percent said a recession in that timeframe was unlikely or somewhat unlikely.
“Given all the recession talk in the last few months, the level of pessimism isn’t really very high,” says Stephen Sayre, co-leader of Dykema’s mergers and acquisitions practice. “There are clearly concerns about trade tensions with China and U.S. political uncertainty – especially with a presidential election next year – but with consumer confidence still relatively high and the U.S. economy looking fundamentally strong, there’s no sense that the sky is falling.”
About 43 percent of respondents said trade tensions with China and 35 percent said U.S. political uncertainty were the greatest threats to U.S. M&A activity over the next 12 months. About 36 percent think next year’s presidential election will have a positive impact on activity, while 38 percent thought it would have a negative effect.
Despite trade issues with China, respondents picked the country as the top destination for U.S. outbound M&A activity, followed by Europe, Canada, and Japan. A year ago, the country didn’t make the top five.
About 33 percent of respondents said the main driver of U.S. M&A activity in the next 12 months will be general U.S. economic conditions, displacing availability of capital (24 percent), which had been in the top spot for the past six years.
About 58 percent expect an increase in activity involving privately owned businesses in the next year, down from 82 percent in 2018. Financial U.S. buyers are expected to be the biggest influencers on U.S. deal valuations. This is the same group as last year. Respondents also believe foreign buyers will have greater influence compared with a year ago.
Respondents predicted the following sectors, in order from greatest to least, will see the most M&A activity in the next 12 months: automotive, health care, energy, consumer products, and technology. health care moved up two spots from 2018.
The full report is available here.