News & Insights

Dykema Announces Results of Sixth Annual Mergers and Acquisitions Industry Survey

Results Revealed at Annual Mergers and Acquisitions Seminar in Detroit, Outlook Event in Chicago

October 19, 2010

CHICAGO/DETROIT—Dykema, a leading national law firm, today announced the results of its 2010 M&A Outlook Survey. The sixth annual survey of industry leaders examined how federal legislation, the U.S. economy, financing challenges and other domestic and global matters will impact the M&A industry in the coming year.

For the second year in a row, confidence in the U.S. M&A market is slowly increasing after sliding for several years. Thirty-eight percent of industry leaders say they think the market will be strong during the next 12 months, and 52 percent are neutral on the outlook for the coming year. Looking at the overall U.S. economy, more than half of respondents are neutral on the prospects for 2011, and the remainder are split between positive and negative outlooks.

Respondents believe strategic buyers are still the strongest drivers of M&A activity but private equity buyers are making a comeback. Economic conditions are not driving the market as much as they were in 2009, and far more respondents than last year think there will be no significant change or some decrease in the number of distressed transactions.

"The last few years have been some of the most challenging for businesses to navigate in the past century.Confidence in both the M&A market and the broader U.S. economy finally started to improve last year and executives surveyed in 2010 are cautiously optimistic for the coming year," said Dave Cellitti, leader of Dykema's M&A practice."This shift in perceptions is a consistent trend throughout Dykema's 2010 survey and represents a marked improvement over the prior two years.It is a positive sign indicative of anticipated economic stabilization."

The economy is also affecting deal structures and dealmakers saw even more alternative financing in 2010 than in past years. More than one-third of respondents cite material adverse change/effect clauses as the subject of increased negotiations during the past 12 months, indicating a high focus by buyers on the need to retain the ability to scuttle a deal because of pre-closing changes in the business to be acquired. The same concern by lenders causes buyers to be uncertain about their ability to complete their acquisition financing, contributing to tougher negotiations surrounding financing contingencies as suggested by 54 percent of respondents.

"Dealmakers need to be flexible, but respondents tell us buyers are coming back into the marketplace. Earnouts, seller financing and subordinated debt financing are becoming more common, and creative deals are the new norm. Healthy deals with good prices are likely to have quality bidders," noted Dykema M&A attorney Tom Vaughn.

Significant recent federal legislation seems to be a factor fresh on respondents' minds, as they are far more negative about the impact of the federal government's actions on the M&A market than they were at this time last year. Twenty-eight percent say federal initiatives have meant increased market activity, 27 percent say there has been little to no impact, and 46 percent say the federal government's actions within the past 24 months have caused decreased activity in the U.S. M&A market. While respondents are split on whether actions taken by the government to stabilize the economy have had a positive impact on the U.S. M&A Market, they overwhelmingly agree that healthcare reform and Dodd-Frank have negatively impacted the market.

"While industry leaders are mixed when it comes to early Obama administrative initiatives like the automotive bailout and stimulus bill, they are strongly concerned about major recent legislation in the health care and financial space," explained Jeff Dalebroux, director of Dykema's Business Services Department. "Some of their caution about the future of the U.S. M&A market may stem from the uncertainty about how policy will shift after the pending midterm elections."

In September, Dykema distributed the survey via e-mail to a group of executives, bankers and advisors. Survey respondents were asked about the future of the market, cross-border deals and the general strength of the economy. Some survey highlights include:

  1. Confidence in the U.S. M&A market is slowly improving for the second year in a row. 38 percent of respondents predicted a strong market and just 10 percent had a weak outlook. Confidence was lowest in 2008, when only 16 percent believed the market would be strong in the following year, down from a high of 63 percent of respondents in 2006.
  2. For the second year in a row, strategic buyers (53 percent) were seen as the group most influencing deal valuations over the previous year.
  3. Respondents believe strategic buyers are most likely to increase their presence in the M&A market over the next 12 months (51 percent) and foreign buyers are most likely to decrease their presence (53 percent).
  4. Forty-nine percent of respondents say they have been involved in an M&A transaction in the last 12 months that has been adversely impacted by the availability of financing. While financing is still impacting deal cost and delaying closings, respondents do say that lower sale prices and a lack of bidders were less of a problem in 2010, which may signal a sense that increased availability of financing is bringing buyers back into the marketplace.
  5. China, Germany, India and Canada are named the most likely regions for foreign buyers in the U.S. M&A market over the next year. Respondents named China, Brazil and India as the hotbeds for outbound U.S. M&A activity in 2011.

At Dykema's M&A events yesterday and today, Midwest company executives, bankers and outside advisors discussed the current and future state of the M&A market. The Chicago event featured keynote speaker David Evans, chairman and chief investment officer at Glencoe Capital LLC. The annual Detroit Seminar featured discussions on trends in the M&A market, tips on exit timing and strategies and key emerging legal M&A issues. Panelists included industry professionals from Dykema, Amherst Partners, Donnelly Penman & Partners, Ernst & Young, Glencoe Capital, Huron Capital Partners and P&M Corporate Finance.

For a copy of the full results of the survey, please contact Laura Miller at 312-252-4104.