Jeffrey Gifford, Dykema Cox Smith

M&A activity over the next 12 months will be dominated by small and middle-market deals, according to corporate executives who participated in the 13th annual Dykema M&A Outlook Survey.

Seventy percent of corporate executives expect the number of deals valued at less than $50 million to increase over the next 12 months, and 53 percent expect an increase in the number of deals valued between $50 million and $100 million.

Jeffrey Gifford, a Dykema Cox Smith member in San Antonio who is co-leader of the firm’s M&A subgroup, said it’s interesting, but not surprising, that the focus of M&A is shifting from mega-deals to smaller and mid-market deals.

“People have been saying for a while now that … really quality buys are becoming more difficult to come by. They are having to dig a little deeper and look a little farther, look a little harder,” Gifford said.

The leading industries for that M&A activity are health care, technology and energy, in that order, according to the survey. That’s a switch from the 2016 survey, when energy was expected to be the busiest industry in the M&A arena, followed by health care and technology.

Overall, the executives are optimistic about the M&A outlook for the next year, with 39 percent forecasting the U.S. M&A market will strengthen, compared to 33 percent in the 2016 survey, and 37 percent in 2015. Over the next 12 months, 68 percent of respondents said, they expect to be involved in an acquisition, compared with 70 percent a year ago. And 38 percent expect to be involved in a joint venture, compared to 43 percent last year. Less than half, 47 percent, said they expect to be involved in a sale over the next year, compared to 48 percent a year ago.

For the fourth year in a row, executives identified the availability of capital as the leading driver of M&As. A lot of it is private equity money, Gifford said.

“It never ceases to amaze me how much excess capital is out there. There is a lot of money still sitting on the sidelines out there,” he said.

A total of 123 executives around the country, including chief executive officers, chief financial officers, owners, managing directors and other professionals involved with M&A activity, participated in the survey. It was conducted from Aug. 31 through Sept. 15 and was made public this week.

Nearly 80 percent of respondents, 10 percentage points higher than the survey last year, said they expect an increase in M&A activity involving private business. They cited the aging of private business owners as the most important reason why.

Then there’s the “Trump Effect.” The executives who participated in the survey said President Donald Trump will be a “positive force” in the U.S. markets this year.

“Slightly more than half of respondents (55 percent) said Trump would have a positive impact on the U.S. economy in 2018, versus last year, when the majority expected no change in the economy, regardless of whether Trump or Democratic nominee Hillary Clinton moved into the Oval Office,” Dykema wrote in the survey.

Also, more than half of the executives said Trump would have a positive impact on the U.S. M&A market in 2018, due to a strong stock market and generally positive outlook. Antitrust concerns could dampen that impact, however, while corporate and personal tax decreases would have a positive impact on the M&A market, they said.

Gifford said the executives forecast that Trump would have a positive impact on business because they hold the view that business is going to get better since there is a businessman in the White House.

“That’s part of it. The other part of it is everybody’s hoping there will be some major tax reform…Those are all big positives for business if he and the Republican Congress can get that done,” he said.

Globally, respondents said uncertainty about the Trump administration’s “priorities and regulations” have the greatest potential to impact activity in the global M&A market. The Federal Reserve’s interest rate outlook and optimism about economies in Asia, including China, are other big factors, according to the survey.

Overall, Gifford said the survey’s big takeaway for M&A lawyers is that mergers and acquisitions will continue to be a busy practice area, but the size of the deals in 2018 may be smaller.