M&A activity reflects an unsettled market.

• Author: Parker, Douglas
• Position: M&A - Mergers and Acquisitions - Survey

Predictions of mixed prospects for the mergers and acquisitions market during the coming year appear to reflect uncertainty about the United States economy in general. This theme was found throughout the Seventh Annual Mergers & Acquisitions Survey of senior executives conducted by law firm Dykema, which was released in early December.

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The survey of 299 senior executives and their outside advisers, conducted in October, revealed that more than half of the respondents expect to be involved in at least one transaction in the coming year, so they have good reason to keep a close watch on the M&A market.

The majority of respondents expect the M&A market to be neutral during the next 12 months, while 26 percent expect it to be strong and 16 percent foresee a weak market. Overall, this represents a slight decline from the previous year and reverses a two-year trend of increased optimism in the M&A market.

Despite expectations of a somewhat lackluster market, only 10 percent of respondents believe that the market will be weaker during the next 12 months than it was in the previous year. The other 90 percent are almost equally split as to whether the market will im-prove or show no significant change. While these results might appear contradictory, they may illustrate a recalibration of expectations in which an improved market may still be viewed as less than robust.

When respondents were asked about their expectations regarding transactions of varying sizes, the results show a clear inverse relationship between the size of the deal and the expected change in the number of transactions during the coming year. More than 62 percent of respondents believe there will be an increase in the number of transactions valued at less than $50 million, and just 27 percent expect an increase for deals over $1 billion.

Many small- and middle-market deals taking place are "add-on" transactions, in which companies are acquiring competitors. Such acquisitions are often seen as a way of increasing business during periods when there is flagging organic growth.

Despite somewhat mixed expectations for the M&A market in general, nearly 60 percent cent of respondent believe that their company will be involved in a transaction as a buyer in the next 12 months. When analyzed in light of responses to other questions, it appears that survey participants expct to be involed in a fair number of transactions in the coming year, but that they will tend to...