Expectations for U.S. M&A activity in 2020 have nosedived from those that prevailed late last year looking ahead to 2019, according to the latest annual study by the law firm Dykema Gossett.

After the 12-month outlook barely wavered for three straight years, from 2015-2017, optimism soared in 2018. Heading into last year, 65% of surveyed senior executives and advisers expressed a positive outlook for M&A, and only 15% had a negative outlook.

What a difference a year makes. In the new survey, only a third (33%) of the 200 respondents anticipated a positive M&A market in 2020, barely topping the 32% with negative expectations.

The results weren’t much of a surprise, owing to the softer M&A market that ultimately has prevailed for most of 2019 after strong deal activity in the first quarter.

Still, Dykema pointed out, 2019’s overall M&A volume has been relatively strong, and a plurality (36%) of survey respondents said the U.S. market will see no significant change in the next 12 months.

But a change of sentiment is clearly in the air. For the first time in six years, availability of capital was not the factor most often cited for fueling M&A activity. This year, general U.S. economic conditions led the list, with 33% of survey takers pointing to it as the biggest driver, well ahead of capital availability (24%).

“The change in M&A drivers suggests that some companies are making deals to cope with slow organic growth, [and] others are hurrying to make deals before a downturn … and expect downgraded valuations in the coming year,” Dykema wrote.

A sizable portion of survey participants (41%) agreed that valuations will decline over the next 12 months, while only 16% disagreed. The 43% who didn’t lean one way or the other constituted “a major signal of uncertainty,” according to the survey report. “That, as much as any data point in this year’s survey, might sum up the wait-and-see nature of our current moment.”

Asked to identify the greatest upcoming challenge for the M&A market, two items — China trade tensions (43%) and U.S. political uncertainty (35%) —dominated the list, with the next-greatest concern at a mere 8%.

A plurality (38%) of respondents said the elections would have a negative effect on deal activity. An overriding theme in the survey results was that uncertainty surrounding who will be the next president is not good for M&A. Another theme was concern that a Trump loss would undo the 2017 Tax Cuts and Jobs Act.

Meanwhile, participants’ expectations for the broader economy closely tracked their feelings about M&A. But when a downturn will hit and how bad it will be are open questions, according to the report.

“Respondents who were more optimistic going into 2020 pointed to positives such as historically low unemployment, steady economic growth, solid corporate earnings, and the fact that economies usually perform well in election years,” Dykema wrote.

“For many respondents, even this summer’s sighting of an inverted yield curve wasn’t as concerning when other signs weren’t present, like a serious drop in consumer confidence,” the law firm added.

Consumer confidence did fall sharply in September but remains relatively high by historical standards.

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