An overwhelming majority of US Executives (93%) pursuing  an acquisition plan to do so outside of their own sector, according to EY's semiannual Global Capital Confidence Barometer, now in its 13^th edition. The survey also finds that despite some uncertainty on the horizon in the global economy, 74% of US executives indicate that they plan to pursue a deal sometime in the next year, the highest number recorded yet by the Barometer, and 88% expect stability in the domestic M&A market. 

Pipeline growth remains steady as all US executives surveyed are maintaining or growing the number of targets in their pipelines. 80% of companies have either two or three deals in the pipeline. While upper-middle-market deals (between US$250 million and $US1 billion) are expected to increase, the majority of deals, 83% are still expected in the middle market (under $250 million).

"On the heels of a prolonged phase of industry shaping megadeals, the US market is experiencing healthy and sturdy levels of dealmaking confidence," said Rich Jeanneret, EY Americas Vice Chair, Transaction Advisory Services. "After two years of heightened valuations, prices are finally starting to come back down to earth; 77% of executives are now calling the valuation gap 'small,' and that is a positive indication that an increase in deal activity lies ahead."

Top sectors for US dealmaking  
In the US, diversified industrial products, consumer products and retail, automotive and transportation, real estate and life sciences are expected to be the most acquisitive over the next 12 months. A desire to establish inorganic growth to buffer against any potential economic downturn is a main driver of deal activity. To further underscore US executives' tempered outlook, respondents said that on average they are allocating more than half of their available capital to reduce their debt and to shore up their balance sheets. This amount is more than organic and inorganic growth, and shareholder cash deployment, combined.

The Barometer also shows that cross-sector acquisitions are influenced by a range of drivers, including access to new materials or production technologies (43%), changes in customer behavior (27%) and reacting to competition. These factors are changing competitive dynamics within sectors, forcing companies to protect market share through M&A.  In addition, the rise of a new kind of economy—driven by more entrepreneurial and "gig-based" business models—is upending the core business strategies of numerous US enterprises, ahead of the rest of the world.

"US executives are more focused on innovative R&D and new technology to help drive growth" said Jeanneret. "Core operations and sector are still key drivers, but executives are increasingly finding they must look beyond their own sectors to deliver on the aggressive growth the market demands."

Improved tax structure is among leading drivers of M&A deals   
While companies are looking to insert themselves into new service areas, enter new geographic markets through cross border deals and reduce overall costs while improving margins, the Barometer results indicate that improving structural tax efficiencies remains among the leading the drivers for M&A in the US.

Cybersecurity concerns becoming a major factor to the dealmaking process   
Following a series of high-profile data breaches in the US, executives are more wary than ever about the risk of potential cyber-attacks, which in turn impact the deal process - 86% of US executives see cyber-attacks as a high level threat to the dealmaking process. 

In this new era of cyber vulnerability, the C-suite will continue to see cybersecurity as a principle tenant of a well-crafted deal and will be comfortable, if not expected, to walk away from any prospective deals that pose new risks.  

M&A outlook can be characterized by strong deal fundamentals and careful deal consideration

A return toward strong deal fundamentals, such as the number and quality of opportunities for acquirers and the likelihood of closing a deal, have all increased from last year. However, despite a strong array of deal options on the market, the Barometer found that an overwhelming amount of executives (96%) have cancelled deals they felt were no longer in their best interest.

"Corporate leaders in this M&A market are being valued for their patience in finding the right strategic deal and for their ability to assess the trove of dealmaking data available to them," Jeanneret concluded. "As executives balance exuberance and prudence, this period of cautious M&A could lead to a sustained deal boom that will benefit a multitude of companies' growth goals."