News & Insights

Dykema Announces Results of Seventh Annual Mergers and Acquisitions Outlook Survey

Confidence in M&A Market Affected by Global Economic Shifts; Availability of Capital Remains Biggest Driver for Current Activity

December 5, 2011

CHICAGOThe coming months represent the continuation of a critical period for U.S. and international businesses in the M&A market, according to Dykema’s 2011 M&A Outlook Survey. The seventh annual survey of leading company executives and outside advisors examined how the U.S. economy, financing challenges, and other domestic and global matters will impact the M&A market in the coming year. 

The survey, measuring the attitudes and perspectives of 299 respondents, revealed that after slowly increasing the last two years, confidence in the U.S. M&A market has dropped slightly. Twenty-six percent of industry leaders believe the market will be strong during the next 12 months, down from 38 percent last year, while 57 percent are neutral on the outlook for the coming year. Looking at the overall U.S. economy, nearly half of respondents are neutral on the prospects for 2011, but for the second consecutive year, respondents have a more pessimistic outlook compared to the previous year.

“Given the drastic economic shifts of the past 24 months, it is not surprising that corporate executives are somewhat less confident than a year ago,” said Dave Cellitti, leader of Dykema's M&A practice. “However, more than half of the survey’s respondents expect to be involved in at least one transaction in the coming year, so they have good reason to keep a close watch on the M&A market.”

Respondents believe that availability of capital (39 percent) is the biggest driver for current M&A activity, due in large part to strategic buyers and private equity firms with greater access to financing. However, an uncertain economy has been the most frequent obstacle to successful deals during the past year, and as a result, over half of the respondents think the coming year will bring an increase in the number of distressed transactions.

The economy is also affecting deal structures and dealmakers saw even more alternative financing in 2011 than in past years. Purchase price adjustments, which were not included as an option on last year’s survey, are the number one provision of increased negotiation in purchase agreements according to respondents. A third of respondents identified earnouts as a major discussion point, a figure down sharply from 2010 when 66 percent of industry leaders selected that option. Financing contingencies continue to be a hot button issue but are also down from last year with an improving financing market (41 percent in 2011; 54 percent in 2010).

“We are still working through difficult and unprecedented global financial crisis, and there remains a detectable note of reservation, if not concern, among the survey respondents,” explained Jeff Dalebroux, director of Dykema’s Business Services Department. “The run-up to the upcoming elections may set the stage for even greater uncertainty and confusion that could impact numerous domestic and foreign policy issues currently on the table.”

 According to Dykema, the survey yielded a number of other interesting conclusions, including:

  • Respondents believe strategic buyers are most likely to increase their presence in the M&A market over the next 12 months (51 percent), a figure that has remarkably stood for the last four years. Financial buyers are most likely to decrease their presence (43 percent), which flip-flopped with foreign buyers this year.
  • For the third consecutive year, strategic buyers (44 percent) were seen as the group most influencing deal valuations over the previous year. Financial buyers are not seen as driving valuations any more than they were a year ago.
  • China, Europe, India and Canada are named the most likely regions for foreign buyers in the U.S. M&A market over the next year. Respondents continue to look at China as the principal source for investors in U.S. companies, far outranking any other region. Interestingly, Europe is named the second most likely region for U.S. investment despite the current economic turmoil.

In October, Dykema distributed the survey via e-mail to a group of senior executives and outside advisors including CEOs, CFOs and other company officers. Survey respondents were asked about the future of the market, cross-border deals and the general strength of the economy. The results were revealed at Dykema’s State of the Economy and 2012 M&A Outlook event in Chicago, where keynote speaker Adolfo Laurenti, Deputy Chief Economist at Mesirow Financial, discussed the current and future state of the M&A market.