Optimism Wanes Among Dealmakers for M&A Market in Dykema’s 11th Annual Outlook Survey

In Dykema’s 11th annual M&A Outlook Survey, respondents showed less optimism regarding growth in M&A and the U.S. economy during the next 12 months.

Just 37 percent of respondents said they believed M&A activity would strengthen in the next 12 months – down from 59 percent of respondents in last year’s survey. Twenty percent said they expect the market to weaken, compared with just nine percent of respondents last year.

Meanwhile, fewer than half (48 percent) of respondents were bullish about the U.S. economy overall for the next 12 months, compared with 62 percent in 2014.

Survey respondents from more than a dozen sectors, such as automotive, industrial and manufacturing, health care and technology, took this year’s survey in late August and early September. That was a period of heavy turmoil for world markets amid a year of high-flying M&A numbers, led by some megadeals, which put 2015 on a pace close to M&A’s record year of 2007.

Megadeals were part of the explosion in M&A in health care this year – which respondents again picked as the sector they’re most bullish about for the next 12 months. Forty-five percent of respondents said they expect the current pace of health care M&A to continue beyond 2017.

Optimism wasn’t limited to health care. Seventy-two percent expect M&A involving privately owned business to increase in the next year, though that was down from 82 percent in 2014’s findings. Those kinds of results – a mixture of muted optimism, some uncertainty and small increases in pessimism -- were common in this year’s report.

“M&A activity in 2015 surged for much of the year, but respondents clearly are wondering how long it can last,” said Tom Vaughn, co-leader of Dykema’s M&A practice. “Many of the strong overall results were driven by megadeals, but we agree with the findings that while the outlook for the next year is not as strong as it was a year ago, there is still a great deal of positive momentum in the M&A market.”

The report found that respondents were much more optimistic about outbound activity from the United States than they were about other countries. There was a large drop from 2014 regarding expectations for investment from China, Europe and other countries to the United States. Respondents had similar levels of optimism as in 2014 regarding U.S. investment overseas – with the exception of increased expectations for U.S. investment in Europe and decreased expectations for U.S. investment in China.

The survey yielded a number of other interesting conclusions, including:

• Fifty-two percent of respondents said that strategic buyers most influenced U.S. deal valuation over the past 12 months, up from 42 percent in 2014. When asked why, some respondents noted availability of cash and financing for buyers seeking synergistic transactions.
• Although just 48 percent of respondents said they had a positive outlook on the U.S. economy over the next 12 months, the percentage was still higher than the results in all but three years since the question was first asked in the survey in 2005.
• Similarly, just 38 percent of respondents said they expect the U.S. economy to improve in the next 12 months, down from more than half who picked that choice in 2013 and 2014 but higher than the results in 2011 and 2012.
• Health care and technology were the top two sectors respondents picked for the most M&A activity in the next year, followed by energy, industrial/manufacturing and automotive. These rankings were similar to the 2014 findings.
• A stronger economy was the top choice given by respondents when asked to pick the factor that would most positively impact financial services M&A in the next 12 months. A weaker economy was cited as the top negative factor in the market.
• Of the 72 percent of respondents who expect an increase in M&A activity involving privately owned businesses, the most common explanation was concerns about aging business owners, as those owners may think valuations of their businesses are reaching top levels.

“There are definitely some mixed-bag findings in this year’s report – perhaps indicating the tumultuous world markets over the summer and a feeling that the M&A pace has been so strong for so long that a cool down could happen,” said Jeff Gifford, co-leader of Dykema’s M&A group. “That said, most respondents certainly don’t seem to think the sky is falling and that there are positives out there, including health care and technology.”

Dykema distributed the survey via e-mail to a group of senior executives and outside advisors including CEOs, CFOs and other company officers. The results are being released at events in Detroit, Chicago and San Antonio.

Full survey results are available here.