Attention political squabblers in Washington: you have become white noise.
Political uncertainty and its threat to the economy have curbed M&A in the past, but half of banks and other businesses in a recent survey said they were optimistic about the prospects of the economy and nearly as many were rosy about dealmaking in the next year.
Interestingly, the law firm Dykema Gossett conducted the survey in the final weeks of September as the government shutdown and the debt-ceiling crisis loomed. An upbeat outlook in those circumstances could signal limited concern about upcoming federal showdowns.
"Most of my clients would say that we've just gotten back to business as usual and are ignoring Washington," says Emmett J. Daly, a principal in investment banking at Sandler O'Neill, which was not involved in the survey. "We are all figuring out how to do business despite the dysfunction of Washington."
The results are good news for banking even though the survey queried other industries, too. Twenty-three percent of respondents were banks, which might be more willing to take a chance on buying a rival if they are more confident about the future. And more M&A activity in the general business world can translate to more leveraged and syndicated lending.
Fifty percent of respondents said they had a positive outlook on the economy in the next 12 months. Meanwhile, 8% said they had a negative outlook. The last time optimism was that high was 2005 when it was at 51%, according to the survey. That same year, 25% of respondents had a negative outlook.
"Businesses have been conditioned by the market over the last few years. There is no way people were more pessimistic in 2005; they've just been conditioned differently," says Douglas Parker, a partner at Dykema Gossett and one of the attorneys who led the survey. "I was really taken by so little negativity."
The 110 business leaders surveyed are also increasingly chipper about M&A prospects in the next 12 months; 44% said they are expecting activity to be strong, while only 2% said they expect it to be weak. That compares with a split of 28% and 14% in 2012.
Additionally, 68% in the latest survey said they believe the next 12 months will be stronger than the last 12 months.
Despite the upbeat report, actual bank and other M&A activity remain low. It is unclear where optimism about the near future is coming from; 39% of respondents said current economic conditions were fueling current M&A volume.
"There is this optimism, yet we don't see a boom," Parker says. "It is getting better, step by step. The psychology is there, and maybe the optimism becomes a cause-and-effect situation."
Bankers get that. The industry has been talking about major consolidation for years now. There were the busy years right before the economic collapse of 2008. That, of course, was followed by a dearth of much of anything outside of the failed-bank game. In the last couple of years, dealmakers have been disappointed as activity has picked up, but not picked up enough.
Daly says the market is evolving. Strategic partnerships were the rage in 2013, with deals like Umpqua Holdings' (UMPQ) agreement to buy Sterling Financial (STSA) and PacWest's (PACW) agreement for CapitalSource (CSE).
"I would agree, only based on a gut feeling, that we can expect a lot more M&A activity in 2014," Daly says, admitting that he thought 2013 was going to see more volume than it has. "I thought the operating environment was going to put enough pressure that it forced M&A in 2013. It didn't happen."