Uncertainty is Expected in 2020 M&A Market
If there is one word that sums up how top executives seem to feel about new deals in the new year, it would be “uncertain.” CFO.com recently published results from an annual study conducted by Dykema Gossett. As we think about merger and acquisition activity in 2020, here are the survey results that caught our attention:
1. Perspectives are changing
From 2015-2017 the M&A outlook among top executives stayed largely the same. In 2018, optimism soared with 65 percent of those surveyed feeling positive about M&A activity for the coming year (2019). Fast forward to now – only one-third of respondents are optimistic about the market in 2020.
Are these results surprising? Not really – They may be dramatic, but they aren’t very surprising. While there was generally strong M&A activity in Q1 of 2019, the market has softened as time passed.
2. Deal drivers are changing
According to the survey results, for the first time in six years, the availability of capital was NOT the number one factor driving M&A activity. Instead, this year executives are more focused on U.S. economic conditions. Specifically, the study authors suggest that some companies are making deals to cope with slow economic growth and/or are hurrying to make deals before an expected economic downturn.
3. Market challenges are changing
When asked about the greatest challenges facing the market in 2020, two items dominated the responses:
1. China trade tensions (43%)
2. U.S. political uncertainty (35%)
Like the general outlook, these findings aren’t overly surprising. With 2020 being a U.S. election year, it is common for executives to feel uncertainty around who may be the next president and to make the assumption that the uncertainty is bad for M&A activity.
Should executives be worried about the market or the economy in general?
It really depends. Survey respondents who were more optimistic going into 2020 cited positives such as historically low unemployment, steady growth, solid corporate earnings, and/or the fact that economies historically perform well in election years.
While, yes, it can be said that the stock market generally performs well in election years, we’re compelled to point out one of the core pillars of investing – past performance does not guarantee future results.
Each and every deal is unique. The factors above may play into decision making or they may be less influential. If you are considering buying a business or putting your business up for sale in 2020, we can help you think through the decision. Symmetrical assists Middle Market companies strategically assess their needs and prepare for big transitions. Contact us for a confidential discussion about how we can help.