DealLawyers.com Blog

According to Dykema’s 2011 M&A Outlook Survey, after slowly increasing the last two years, confidence in the U.S. M&A market has dropped slightly. 26% of industry leaders believe the market will be strong during the next 12 months, down from 38% last year, while 57% are neutral on the outlook for the coming year. Looking at the overall U.S. economy, nearly half of respondents are neutral on the prospects for 2011, but for the second consecutive year, respondents have a more pessimistic outlook compared to the previous year.

Respondents believe that availability of capital (39%) is the biggest driver for current M&A activity, due in large part to strategic buyers and private equity firms with greater access to financing. However, an uncertain economy has been the most frequent obstacle to successful deals during the past year, and as a result, over half of the respondents think the coming year will bring an increase in the number of distressed transactions.

The economy is also affecting deal structures and dealmakers saw even more alternative financing in 2011 than in past years. Purchase price adjustments, which were not included as an option on last year’s survey, are the number one provision of increased negotiation in purchase agreements according to respondents. A third of respondents identified earnouts as a major discussion point, a figure down sharply from 2010 when 66% of industry leaders selected that option. Financing contingencies continue to be a hot button issue but are also down from last year with an improving financing market (41% in 2011; 54% in 2010).

According to Dykema, the survey yielded a number of other interesting conclusions, including:

– Respondents believe strategic buyers are most likely to increase their presence in the M&A market over the next 12 months (51%), a figure that has remarkably stood for the last four years. Financial buyers are most likely to decrease their presence (43%), which flip-flopped with foreign buyers this year.

– For the third consecutive year, strategic buyers (44%) were seen as the group most influencing deal valuations over the previous year. Financial buyers are not seen as driving valuations any more than they were a year ago.

– China, Europe, India and Canada are named the most likely regions for foreign buyers in the U.S. M&A market over the next year. Respondents continue to look at China as the principal source for investors in U.S. companies, far outranking any other region. Interestingly, Europe is named the second most likely region for U.S. investment despite the current economic turmoil.