Eternal Optimists

Last updated: Private Equity Perspective

As 2013 draws to a close, momentum builds in middle-market M&A, and optimism abounds in dealmaker surveys

At the end of every year, I ask dealmakers to forecast the next 12 months. Except in rare cases (such as 2008, when Wall Street was reeling from the collapse of Lehman Brothers), most investors inevitably predict the next year will be better. Dealmakers today are no different. Mergers & Acquisitions recently polled PE investors, corporate buyers, investment bankers, attorneys and other M&A advisers to gauge their predictions for 2014.

A whopping 71 percent of survey participants said M&A will improve. The industries they identified as having the most potential for growth were health care, technology, energy and manufacturing -- four of the six sectors we highlight in our cover story.

A cynic might be tempted to argue that there's no way to go but up: 2014 couldn't be worse than 2013. But that wouldn't be accurate. Even without final numbers on 2013, it's clear there have been much worse years for M&A.

Remember 2009? The year produced half the number of middle-market deals that closed in 2011, based on data for transactions under $1 billion involving a U.S. buyer and/or seller, according to Thomson Reuters.

Definitive data on the value and volume of transactions in 2013 won't be ready until January at the earliest. Based on the first three quarters, the year never panned out as hoped. The fourth quarter did pick up some steam. As we reported in the December issue of Mergers & Acquisitions, audience members polled in October reported a slight uptick. It will be a few weeks before we know if that momentum is enough to create an increase over 2012. But it's unlikely that the fourth quarter of 2013 produced the blockbuster M&A results of the fourth quarter of 2012, when transactions were spurred on by tax incentives.

Private equity investors are optimistic by nature. They tend to see the glass as half full. While others might see a broken company or industry, they see a fixer-upper. They insist that companies can be improved - and that they're the ones who know how to improve them. Most PE partners say the future will be better than the past. Here's hoping they're right.

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