Optimism returns to M&A market with 2018 the year of small and middle-sized deals, says new survey

BY Fraser Tennant

Optimism is returning to the M&A landscape with smaller and middle market deals expected to lead activity in 2018, according to a new survey from Dykema.

The survey – the law firm’s 13th annual M&A outlook – reveals that 39 percent of respondents expect the M&A market to strengthen over the next 12 months, up from 33 percent last year and 37 percent in 2015. Furthermore, 60 percent predict a strong US economy in the year to come – double the result of last year’s survey.

In terms of the US, 55 percent of respondents indicated an expectation that president Trump will be a positive force on both the US economy and M&A market in 2018. Among the factors playing a role in this optimistic sentiment are the expected reduction in corporate tax rates, more favourable business regulations and the Trump administration’s perceived business-friendly positive economic policies.

“With the uncertainty around the presidential election in the rearview, our survey respondents are abandoning the ‘wait and see’ mantra, with an increasing number predicting that deal activity is back on the rise,” said Thomas Vaughn, co-leader of Dykema’s M&A practice. “However, we are still hearing that uncertainty around the Trump administration’s priorities and regulations will have the greatest impact on M&A from a global perspective.”

Additional key findings include: (i) the majority of respondents (70 percent) expect the volume of small deals (under $50m) will increase over the next 12 months, with 53 percent predicting an uptick in deals valued between $50m and $100m; (ii) for the fourth consecutive year, respondents expect technology and healthcare to see the most M&A activity over the coming year; (iii) 59 percent of respondents predict an increase in M&A activity between FinTech startups and established financial services organisations in 2018; and (iv) 68 percent of respondents said they would be involved in an acquisition in the next 12 months, sentiment consistent with 2016’s 70 percent.

Survey respondents also stated their belief that the leading driver of cross-border deals in 2018 will be companies seeking growth via entrance into foreign markets. More companies in Asia are also expected to pursue deals in the US, and outbound M&A activity from the US to Mexico and Canada is expected to increase in the next year, despite ongoing public statements by the Trump administration around the renegotiation of the North American Fair Trade Act (NAFTA).

With a high level of optimism not seen across the M&A landscape for several years, bullish dealmakers are heading back to the negotiating table intent on pursuing strategic transactions.

Report: Mergers & Acquisitions Outlook Survey 2017

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