In a near-unanimous consensus, 94 percent of middle-market mergers-and-acquisitions professionals expect strategic investments to accelerate in the first half of 2010 and lead to a pickup in deal activity. That finding is reported in the latest semi-annual survey of deal-makers released by the Association for Corporate Growth and Thomson Reuters.

If the survey predictions are correct that health-care-related companies will be a top area of M&A focus, Minnesota could see more than its share of activity.

Scott Richardson, managing director at investment bank Houlihan Lokey in Minneapolis describes the overall outlook for mergers and acquisitions as “very bullish.” His optimism is fueled by an encouraging pickup at the end of 2009 after a sluggish couple of years.

Richardson targeted the health care sector as a likely focus for M&A activity, driven by demographics as well as anticipated changes in Washington. Both factors are likely to continue to fuel industry growth.

He also pointed to food and beverage, defense and government-related industries and energy-related companies, particularly those involved in clean-energy technologies, as potential M&A candidates.

While unable to provide a specific regional imprint on the trend, he indicated that the record amount of cash in corporate coffers would likely fuel much of the activity, with a particular emphasis on strategic investing by companies seeking to fuel their growth. Richardson pointed to recent news reports about record amounts of cash on corporate balance sheets showing that the “Fortune 1000 has built up significant war chest” that they will seek to employ.

Echoing that local sentiment, only 8 percent of respondents in the national survey said the current market favors private-equity investors, while 74 percent say it favors strategic investors. More than half of private-equity respondents (54 percent) are actively pursuing distressed companies and 48 percent of all respondents expect more than one of every four M&A deals to be distressed in the first half of 2010.

Worldwide M&A activity totaled $1.8 trillion in announced deals through November, a decrease of 33 percent over the comparable period in 2008, according to Thomson Reuters. Of this total, $461.9 billion were mid-market deals (defined by Thomson Reuters as transactions under $500 million), a drop of 31 percent from the 2008 level.

Strategic M&A activity accounted for 94 percent of total announced deals this year, the highest percentage since 2001, but still showed a 32 percent decline from the comparable period in 2008.

The health care/life sciences sector was named by 23 percent of respondents nationally as the most active area for merger activity in the first half of 2010, followed by manufacturing and distribution (18 percent), financial services (14 percent) and technology (11 percent). The deal-making professionals also expect the health care/life sciences sector to show the most organic growth (28 percent), followed by government-related businesses (16 percent), energy (13 percent) and technology (12 percent).

Thirty-four percent of deal-makers identified manufacturing and distribution as presenting the best opportunities for distressed investing, followed by real estate (16 percent), consumer products and services (15 percent) and financial services (13 percent).

Eighty percent of survey respondents identified the current environment as a buyer’s market with deal-makers looking for bargains. The credit crunch continued to decrease in importance as the biggest obstacle to M&A activity (29 percent vs. 33 percent midyear, and 43 percent this time last year). It was replaced by the bid/ask gap (the gap between the prices at which companies are willing to sell and the prices that buyers are willing to pay) with 37 percent identifying it as the main obstacle vs. 27 percent midyear, and 22 percent this time last year.

Harris Smith, ACG immediate past chairman and managing partner of Private Equity and Strategic Relationships at Grant Thornton, said in a press release accompanying the report,: “Business owners are slowly realizing that valuations will not return to what they were several years ago. Private equity and strategic buyers are all too aware of this and are patiently waiting for sellers to come to grips with the new valuation paradigm and to take some money off the table.”

See details here.

The ACG-Thomson Reuters Year-End 2009 DealMakers Survey polled 921 investment bankers, private equity professionals, corporate development officers, lawyers, accountants and business consultants in October and November 2009.