M&A Activity Regaining Precrisis Health As Hikes In Interest Rates Loom

Dykema, a Detroit-based law firm, released its 10th annual M&A Outlook Survey for 2014 on Thursday. The results suggest that this year’s merger-and-acquisition activity is regaining precrisis health, striking an impressive comeback.

The survey, completed by 190 people throughout the U.S., provides a snapshot of the M&A market and the U.S. economy this year -- and how it compares to the past decade. Respondents worked in 13 different sectors and industries, including automotive, technology and financial services.

“The overall view was that the survey respondents were very optimistic, if not bullish on both the U.S. M&A market and the U.S. economy in the coming 12 months,” Thomas Vaughn, a Detroit-based member of Dykema's Corporate Finance group, said.

This year’s respondents found availability of capital to be the primary driver of M&A activity, whereas in the past two years the top driver was general economic conditions. The biggest change in deal structures, according to Dykema, was increased commercial bank and institutional debt financing, reinforcing that there is more debt financing available. “If you’re thinking about doing an acquisition, there isn’t a better time to do it from a financing standpoint than right now,” Vaughn said.

Separately, U.S. M&A volume reached $1.29 trillion during the first nine months of 2014, up 46 percent year over year, driven by health care and technology activity, according to financial software company Dealogic. This year is already the biggest full year for U.S. targeted M&A activity since 2007, which recorded $1.57 trillion for the year. Meanwhile, global M&A reached $2.75 trillion in the first nine months of 2014, up 31 percent compared with the same period in 2013 and the highest first nine-month volume since 2007 ($3.59 trillion).

One of drivers in M&A activity has been low interest rates. The Federal Reserve has kept interest rates at historic lows in the aftermath of the financial crisis in an effort to spur economic activity. After the Fed’s recent decision to close the final chapter on its 5-year-old bond-buying program, companies are now looking ahead to looming interest rate hikes. Just over 54 percent of respondents said an increase in the Fed's interest rate outlook would have a negative impact on M&A activity in the next 12 months.

“Low interest rates have very much helped fuel the M&A market because of the availability of capital and bank financing,” said Vaughn. “It’s more enticing. How much that’s driving the M&A market by itself? It’s hard to know, but there’s no question that it’s encouraging people to do acquisitions and to do them sooner rather than later.”

Looking ahead, respondents were most bullish on four industries, including health care, followed by technology, energy and industrial and manufacturing. Around 59 percent of Dykema’s respondents expect the M&A market to strengthen in next 12 months, the highest level in eight years. The survey revealed respondents were bullish on the U.S. economy, as 63 percent had a positive outlook for the next year, the highest percentage since 2005 and 2006.