Dealmakers cautiously optimistic about U.S. M&A activity in 2023

Detroit –Despite economic headwinds and political volatility, respondents to Dykema's 18th annual remain cautiously optimistic about the U.S. M&A landscape over the next 12 months.

Nearly two-thirds of business decision makers anticipate the U.S. M&A market will strengthen over the coming year. And while seven in 10 M&A dealmakers believe a recession will occur in that time, over half of them expect a recession will positively impact deal volume. 

"One explanation for this bullish outlook: Even with the steady march of rate hikes and price increases, dealmakers who have stockpiled dry powder will be able to capitalize on lowered valuations and engage in deals,” said Thomas Vaughn, co-leader of Dykema’s Mergers & Acquisitions practice. "Distressed and turnaround deals also thrive during economic downturns – another factor contributing to this optimism."

“The fact that 80 percent of respondents anticipate an increase in private M&A deal activity speaks to how resilient the deal-making landscape is,” said Frank Ballantine, Dykema M&A Survey Leader. “For now, economic conditions are unlikely to spur a further dramatic slowdown in deals, but instead shift activity toward more promising sectors.”

This year's survey polled over 200 senior executives and advisors across the nation, including CEOs, CFOs, business owners, managing directors, fund managers, and other professionals who engage in M&A activity. In a departure from 2021 — in which the pandemic had an outsized influence over the market — dealmakers named rising interest rates, economic conditions, and growing inflationary pressure as the most-common obstacles to M&A activity. Respondents also cited the financial markets, economic conditions, and rising interest rates as its strongest drivers.

"This mixed outlook suggests we are entering a market of haves and have-nots. Buyers with a large amount of liquidity — and consequently, no need to borrow at high interest rates — expect to take advantage of affordable buying opportunities, while those who have relied on banks to finance their acquisitions see significant obstacles ahead," said Jeff Gifford, leader of Dykema’s Corporate Finance practice group.

Though respondents concur on many key issues, they disagree on how domestic politics are shaping M&A activity. Though most view President Biden's 2021 infrastructure bill as a net positive, less than half believe his broader agenda bodes well for M&A activity. Similarly, respondents are nearly split on whether a Republican or Democrat-controlled congress is better for dealmakers. 

The survey also yielded several other significant findings, including:

•Sixty-two percent of respondents expect U.S. SPAC IPO activity will be strong through 2023.

•Sixty-four percent of respondents expect their company, one of their portfolio companies, or a company they advise will work on a deal in which the target company or buyer is screened for ESG

• Respondents rank COVID-19 as the eighth most impactful driver of M&A activity, a tumble from its ranking as the second most impactful in 2021.

Respondents expect the financial services, energy, and automotive sectors to see the most M&A activity in the next 12 months. As compared to 2021:

•Financial services rose from 3rd to 1st.

•Automotive dropped to 3rd after four straight years of holding the top spot.

•Technology plummeted from 4th to 8th.

•Cannabis debuted on the list at 5th.

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