MICHIGAN — The coming year could see a slight uptick in mergers and acquisitions in the U.S. compared to the past few years, according to annual M&A survey results from law firm Dykema.
But while there are some green shoots sprouting from the outlook, the report is quick to note that plenty of national uncertainty remains that will keep a damper on deal volume.
Responses indicate “there are glimmers that may point to an eventual return to more robust deal-making markets” in 2013, states a report on Dykema’s eighth annual M&A survey. A few more respondents than a year ago predict a stronger U.S. economy and M&A market in the next 12 months, especially if Congress and President Obama resolve the fiscal cliff and Europe’s debt crisis lessens.
Those views represent a contrast to respondents who remain worried about the U.S. economy. One-third still hold a negative view of the 2013 economy.
“It seems that we have naysayers still, and we’ve got other groups who are seeing better things,” said Tom Vaughn, a member of the M&A practice at Dykema’s Detroit office. “If we can get past the current fiscal cliff and the European crisis and the political gridlock issues we are especially facing in the U.S., there was a group that saw the economy and the M&A market having an ability to rebound starting next year.”
Dykema surveyed M&A professionals and senior executives from Nov. 7-20. Nearly three-quarters of the respondents were from Michigan and Illinois.
Twenty-eight percent of the respondents expect a strong M&A market in 2013, and 14 percent see it as weak. The remaining respondents were neutral.
The results are similar to a year ago, when 26 percent expected a strong market and 16 percent projected a weak market going into 2012. Two years ago, 38 percent of respondents saw 2011 as generating strong M&A activity and 10 percent saw a weak market ahead.
Strategic buyers “still are ruling the day as far as who’s going to be involved in M&A transactions,” said Brian Page, a member of the business services practice at Dykema’s Grand Rapids office. That “could be a function of those who see opportunity in uncertainty and the economy providing opportunity for strategic buyers,” Page said.
Fueling the M&A activity are general U.S. economic conditions, the availability of capital and favorable interest rates, according to survey results. One-quarter of respondents hold a favorable view of the economy over the next 12 months, compared to 18 percent a year ago, and 32 percent were negative, the same percentage registered in last year’s survey for 2012.
A rebound in valuations from a few years ago that prevented owners from exiting a business will motivate sellers, Page said.
“If you are the right deal, you can sell your company for a very, very good price and take the money off the table. I also happen to think that there is pent-up demand, and there are a lot of baby boomers who own companies who haven’t been able to liquidate for the last number of years. I think there are lots of people out there looking for the opportunity to get what they think is a fair valuation,” Vaughn said. “There is lots of money chasing still too few good deals.”
The potential increase in the capital gains tax – which has driven a flurry of activity in recent months, as business owners who wanted to sell seek to complete a deal before Dec. 31 to avoid the higher tax burden – will affect activity on 2013, according to survey respondents.
Half said the higher capital gains tax will have a “somewhat negative” impact on the M&A market, and 18 percent predicted a “significant negative” impact.