“Winter is coming.”

The through-line statement that served as the storytelling backbone of the hit HBO TV series “Game of Thrones” speaks to an unknown, ominous and destructive force bringing forth catastrophic impact. But it could also be applied to the potential for a significant financial pullback or recession as we look ahead toward 2020. 

The Fuqua School of Business at Duke University just released its most recent quarterly study of business optimism, with levels sinking to a three-year low. Indeed, more than half of the 247 U.S. CFOs surveyed in the study believe that the country will be in an economic recession by the third quarter of 2020, with a stunning 67 percent predicting a recession by the end of next year. 

Sentiment among global CFOs was even lower, and the key factors contributing to the overall pessimism were economic uncertainty, challenges in hiring/recruiting, government policies, data security and the cost of employee benefits, in that order. 

CFOs are also predicting a significant slowdown in corporate spending, with a less than 1 percent increase in capital allocation expected over the next 12 months — a figure that is the lowest since the third quarter of 2016 and the second-lowest growth figure since December 2009 (which was smack dab in the middle of our last notable recession). 

So, bearing that sobering news in mind, and layering on the added nuance that 2020 will be a presidential election year, what are the most likely scenarios for the M&A landscape next year?

Taking past as prologue, it might not be time to become overly bearish just yet, at least when it comes to deal flow.

Looking at the past 30 years of M&A data collected, you’ll see that demand for deals remains intact, even in the face of looming downturns, rate uncertainty, global macroeconomic murkiness or seismic changes at the federal levels. Companies still need to win market share, create synergies, gain talent and drive growth, and metrics from 2002 and 2008 — representing the last two major pullbacks — tell us that smart, targeted and highly strategic deal activity will remain very much intact. 

According to Deloitte, strategic buyers have dominated the landscape in the cycle since 2009 — to the tune of 85 percent of deal value during that time — and similarly represent 87 percent of total value in the last 25 years. 2020, even with a baseline profile of “VUCA” (a term coined by the U.S. Army War College to characterize environments rooted in volatility, uncertainty, complexity and ambiguity), will remain fertile ground for putting cash and assets into play.

History also says that there is a likely slowdown in mega deals as large corporations tilt toward a more conservative stance until circumstances stabilize or turn upward. This could be more than offset by an increase in smaller, highly focused transactions executed by smartly run companies boasting strong balance sheets, cash reserves and an eye for value that can emerge during distressed moments in time. 

It’s also possible, if not likely, that we will see some normalization of valuations and multiples — which have grown outsized to empirical realities — while deep-dive due diligence and stress-test assumptions take on even greater importance and magnitude. Ruthless objectivity when it comes to deal identification and evaluation, coupled with a long-term view and an understanding that regression to the mean is a historical and scientific constant, will help determine winners and losers in the uncertain days ahead.

Across the economic landscape, winter may indeed be coming — and, with it, seismic change and a potentially painful pullback that could have negative global impact for some period of time. But we should also take note that spring inevitably follows and brings optimism, fresh opportunities and a new chance to win. 


Chas D. Withers is CEO at Dix & Eaton Inc. A core emphasis of his work and leadership has been stewardship in high-stakes, complex and transformative situations that span multiple audiences including shareholders, employees, customers, legislators, communities and the media.