Dykema Survey: For U.S. M&A Market, There's Nowhere To Go But Up

The U.S. mergers and acquisitions market is fixing to make a comeback in 2014.

According to a recent survey by the large Midwestern law firm Dykema, 68 percent of 110 M&A industry insiders say the market’s strength will grow during the coming year, while 54 percent of respondents say they have a positive outlook on the U.S. economy's prospects in 2014.

The results paint a drastically different picture from last year’s survey, when only 37 percent of respondents believed the M&A market would gain momentum in 2013 and only 25 percent said they felt positively about the economy's hopes for the coming year.

M&A deal volume in the U.S. increased by 10.5 percent from the second to third quarter and is expected to continue accelerating modestly as sellers capitalize on buyer demand. During the third quarter, the average disclosed deal size for M&A transactions in the U.S. was $66 million.

While outlook on the economy has certainly brightened in the past year, a continued uneasiness persisted through 2013. In a ranking of the most common obstacles to deal-making in the past 12 months, uncertainty in the economy came first, with “availability of a quality target” ranking second, and “valuation” ranking third. In a sign that access to credit for small business owners has eased in the past year, "financing" fell from the second most-common obstacle in 2012 to the fourth this year.

The net amount of small business loans backed by the U.S. Small Business Administration has increased by nearly $1 billion year-to-year, as the agency backed $5.3 billion in loans during the third quarter of 2013, up from $4.3 billion in the third quarter of 2012.

But why are respondents so optimistic about the future of the M&A market? The amount of money idling in corporate coffers was one common reason cited by respondents.

“There’s a lot of capital that’s parked on the sidelines. If the economy is neutral to positive, we anticipate that there will be investments, before interest rates creep up,” one respondent said.

“I believe that with modest improvements to the economy, or perhaps a slowing decline, there will be increased pressure to put excess capital to use or to utilize cheap long-term capital. In general, when M&A activity starts it will snowball as companies don’t want to get left behind as their competitors spend,” another respondent said.

Strengthening equities markets was another factor cited in the survey. Improved stock prices increase a company’s clout with investors, allowing public companies more leeway to make a takeover bid. The S&P 500 gained 4.7 percent and the Nasdaq 10.8 percent in the third quarter.