Deals and IPOs

Nearly 80% of executives says let's make a deal, despite DC uncertainty

Key Points
  • Nearly 80 percent of U.S. executives expect their company to actively pursue mergers and acquisitions over the next 12 months, according to an EY survey.
  • But that deal boom hasn't started yet.
  • Total M&A activity for the year so far is on track for about $1.2 trillion, below 2016's roughly $1.7 trillion, according S&P.
(L to R) Jeff Bezos, chief executive officer of Amazon; Larry Page, chief executive officer of Alphabet; Sheryl Sandberg, chief operating officer of Facebook; then-Vice President-elect Mike Pence and then-President-elect Donald Trump meet at Trump Tower, December 14, 2016.
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U.S. executives are shrugging off domestic policy concerns as they look to strike M&A deals.

Nearly 80 percent of U.S. executives expect their company to actively pursue mergers and acquisitions over the next 12 months, according to an EY survey released Monday.

"That was the biggest surprise" to come out of the survey, said Bill Casey, vice chair for transaction advisory services at EY Americas.

"The fundamental drivers continue to be innovation and disruption," he said. "Companies feel compelled to innovate themselves or to go into the market and buy."

More than 2,300 senior executives, including 459 in the United States, were surveyed in March and April.

Centerview's Effron: Global M&A positively impacted by Trump

M&A activity in the U.S. got off to a roaring start this year, with $35.7 billion in deals being announced in just the first nine days of the year. But the pipeline has slowed considerably since then.

Richard Peterson, senior director at S&P Global Market Intelligence, said nearly $360 billion in U.S. mergers and acquisitions have been announced for 2017, representing a more than 10 percent increase from the same period last year. However, that puts total M&A activity for the year on track for about $1.2 trillion, below 2016's roughly $1.7 trillion.

"Unless we get a couple of mega-deals announced, [M&A activity] will be down this year," he said.

The slowdown in the M&A market coincides with growing uncertainty around President Donald Trump and his administration's ability to move forward with some key policy initiatives, including tax reform and infrastructure spending.

Trump completes his first 100 days in office on Saturday without so much as laying out what some of these policy initiatives might look like. The president is also staring down a possible government shutdown. Government funding will end Friday unless Congress can agree on at least a temporary funding resolution.

U.S. stocks have been on a tear this year, bolstered by the excitement around the Trump administration's agenda. The S&P 500 is up about 6 percent in 2017.

EY's report also cited an improving U.S. economic outlook for executives' eagerness to strike deals.

But economic data have been mixed lately. Weekly jobless claims remain near their lowest levels since the 1970s, but the U.S. economy overall grew at an annualized rate of just 1.9 percent in the fourth quarter.

"We're only getting a whiff of growth," said Randy Warren, chief investment officer at Warren Financial.

Estimates for first-quarter 2017 GDP are also lackluster. The U.S. economy is expected to show a growth of just 0.5 percent for the last quarter, according to the Atlanta Federal Reserve's GDPNow tool.