Dykema survey suggests better M&A?outlook

In the midst of the COVID-19 pandemic and just a year after tempering expectations for deal-making, respondents to Dykema’s 16th Annual M&A Outlook Survey are the most optimistic they have been in the 16-year history of the survey.

Seventy-one percent of respondents expect the M&A market to strengthen over the next 12 months, up from 33 percent in 2019, and 87 percent believe M&A activity will increase in the same time frame. The rise in optimism reflects market conditions and a belief from respondents that the worst is behind them – with both financial and strategic buyers seeing opportunity in a hobbled economy. Further, 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, deal-makers see increasing opportunities for completing deals in the next 12 months,” said Thomas Vaughn, co-leader of Dykema’s Mergers & Acquisitions practice. “The pandemic will continue to influence the deal market over the coming year, but there is a surprising level of optimism among deal-makers that its impact on M&A will wane over time. With 72% of deal-makers 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 yielded several additional significant findings, including:

 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) all vying for the top spot.

Strategic U.S. buyers saw a resurgence in this year’s survey, ranking atop our list of most influential buyers for the first time since 2017, likely a reflection of our unique economic conditions. Financial U.S. buyers followed closely behind and remain flush with deployable capital.

Respondents embraced government programs to help businesses survive COVID-19 restrictions and their fallout. The Paycheck Protection Program (PPP) proved most popular; 73 percent of respondents say they accepted those loans. Just 8 percent of respondents who worked on deals involving PPP reported failing to close the deal due to the loan – a sign dealmakers were able to navigate potential hurdles involving the outstanding loans.

Respondents predict the following sectors will see the most M&A activity in the next 12 months: 1) Automotive; 2) Health Care; 3) Technology; 4) Consumer Products; 5) Financial Services. Notably, education jumped to number six 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 both inbound and outbound U.S. M&A activity. Central/South America and China ranked second and third for inbound activity, with those two options flipped for outbound.

Survey results were released at Dykema’s annual M&A Outlook event on Oct. 27.