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Deloitte: 63 Percent Expect More M&A Activity in the Next Year

Now’s as good a time as any to make an acquisition. And deal activity is expected to continue even if the economy slows down over the next 12 months.

“Though we’re on the outer edges of one of the most prolific M&A markets in history, M&A remains a strategic growth driver for many organizations. So, I think we’re looking at a leveling of activity in 2020, rather than an M&A boom or bust,” Russell Thomson, managing partner of Deloitte’s U.S. merger and acquisition services practices, said. “This could be a good year for companies to focus on the art of transactions, finding ways to add incremental value including exploring pre-deal diligence technologies and engaging increasingly more involved boards to drive accountability and propose deal success.”

Deloitte’s latest survey on the state of the deal gauging 2020 M&A trends polled 1,000 U.S. corporate dealmakers and private equity professionals. Nearly two-thirds of respondents, at 63 percent, expect deal volume to increase in the next 12 months. More than half, 56 percent, expect deal values to increase in the year ahead.

And domestic deals are on the rise as trade wars and tariff negotiations have negatively impacted the operations of the portfolio companies drawing private equity firm investments. Global economic uncertainty presents an ongoing obstacle to M&A activity for many companies when it comes to international deal making, Thomson said.

And all the talk about a possible economic slowdown? That actually could help spur more M&A deals as the year progresses.

If a downturn dampens the economy over the next 12 months, 42 percent of respondents in the Deloitte study said their firms would increase their pursuit of an acquisition in the next two years. That’s because acquiring a company, especially if the asset becomes undervalued and could be acquired at a lower price, is viewed as one way companies can maintain their competitive positioning.

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“While an economic downturn will likely impact the frequency and size of transactions, especially megadeals north of $10 billion, many companies will continue to look to M&A as an important lever to maintain a competitive edge and realize strategic goals,” Thomson said.

And companies on the hunt could find more acquisition candidates should there be an economic slowdown or outright recession. Three-quarters, or 75 percent, of corporate dealmakers expect to pursue a divestiture in the upcoming 12 months, particularly as firms facing financial stress elect to shed unneeded assets. Deal opportunities will be helped by portfolio exits from the private equity investor crowd as they reach their planned investment time frame.

The Deloitte survey did find a gap between deal valuations and the return on investment. Forty-six percent of respondents said less than half of their deals over the past two years generated the return on investment that had been expected.