Dealmakers’ Optimism Cools as Valuation Gaps Cloud M&A Outlook

Dealmakers are still optimistic about mergers and acquisitions, just a lot less so than a year ago. Economic uncertainty, stubborn valuation gaps and higher financing costs have cooled expectations, while artificial intelligence has shifted from a tool that speeds up deals to the prize buyers are chasing, according to law firm Dykema’s 22nd annual M&A Outlook Survey.

Just 51% of respondents expect U.S. M&A activity to strengthen over the next 12 months, down from 74% last year, while 40% expect it to hold steady. Dykema described the mood as one of stubborn optimism: cautious, but not pessimistic.

Respondents named economic uncertainty (49%), valuation gaps (47%) and financing costs (46%) as the biggest obstacles. Concern over valuations jumped from 28% a year earlier.

Availability of capital overtook the economy as the top driver of deals, cited by 48%. Aging business owners and succession planning rose to 33% from 11%.

Data centers and digital infrastructure, a new answer option, topped the list of sectors expected to see the most deals at 38%, followed by technology, media and telecom at 32% and health care and life sciences at 30%. Nearly two-thirds of respondents said AI will add the most value in due diligence, though accuracy and data privacy topped their concerns.

About half expect private equity to have the most influence on valuations, but the share expecting more private equity activity fell to 62% from 83%. Dykema said the story is shifting from deploying dry powder to returning capital through exits.

Plans to participate in deals also dropped. Just 43% expect to make an acquisition, down from 69%.

The survey of executives, investors and advisors was conducted in August and September.