Directors & Boards 2013 M&A survey: while the economic environment is improving, much more important to our board audience for doing deals is the regulatory environment, which is not so constructive. Still, some intrepid directors see opportunities.

• Author: Shaw, David
• Position: 2013 M&A SURVEY - Statistical data

WHAT A DIFFERENCE a year makes. Since our last annual study of M&A from the board's perspective [Second Quarter 2012 edition], economic growth has seemingly begun to return, albeit slowly. Housing prices are up in many markets, consumer confidence has risen, and, as of end of May, the DJIA hangs just a bit under all-time highs set a few weeks back.

This year directors are generally, though not consistently, more bullish on the economy. Now, nearly 20% of respondents see growth accelerating throughout 2013, as opposed to just 10% last year. (There remains a firm 10% of respondents last year and this who foresee a recession before the end of the year). That said, more directors this year see the economy as responsible for what they forecast as a reduction of M&A activity in general.

What appears to be driving this seeming disparity is a view that the economy itself currently is having little impact either way on M&A activity. Much more important, as many directors pointed out, is the impact of the current regulatory environment. "We should be seeing more M&A," commented a director. "But the regulatory environment is significantly curtailing M&A." Another director noted, "Changes in industry regulations, especially in the financial services arena, have a greater impact on our M&A strategy than economic conditions."

That said, many directors see significant potential for opportunistic and bolt-on acquisitions. Commented one director: "An extended cycle of low demand and/or low prices has forced marginal players to consider a sale at below historical multiples."

Other directors pointed to the rising number of distressed deals they've seen, or the availability of "stranded" private equity-owned companies. "There will be opportunistic sellers who have ridden out the downturn and now are anxious to divest on comparatively favorable terms," said a director. "This trend also favors buyers who may in many cases find good deals on key strategic add-ons."

Indicators within our respondent base continue to trend upward. Last year, the average M&A transaction reported by directors (either a purchase or a sale) was $174 million; this year, that number has increased to $250 million. This may be a factor of reduced supply, and higher multiples. Directors generally report that average multiples of EBITDA paid have increased year-over-year, with substantial increases in the 8-9x and 10-11 x ranges. And more directors report these increased multiples as seeming...