Published by Citizens Commercial Banking®
Summary Prepared by Stony Hill Advisors
Survey Details: 600 mid-market firms; focus of this summary is on Lower-Mid Market Companies with Revenues $5MM to <$25MM which accounted for 73% of respondents; statistical significance at the 95% confidence level.
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https://citizenscommercial.com/1365/index.php?c=CTZ1524A000&tab=2
Introduction
After several years of sluggish growth fueled largely by operational streamlining and internal efficiency measures, many executives came to realize that M&A may be the best, or even only, strategy to achieve meaningful growth and meet shareholder expectations.
Buyers are feeling increased pressure to show growth and Sellers are eager to get the most for their business while valuations are still high.
Potential tax policy and regulatory changes proposed by the incoming administration may signal opportunities for a resurgence in economic growth, and even higher valuations, which have implications for Buyers and Sellers alike.
An Active 2017 Is Ahead
A potential lowering of capital gains and estate taxes, as well as hints of a less restrictive regulatory environment and future stimulus spending, have led to a post-election rise in U.S. equity markets in anticipation of a period of accelerated economic growth. As a result, there is now a growing sense among some mid-market decision makers that company valuations may not have peaked just yet.
73% of Buyers indicating they are currently involved in or open to considering making an acquisition (up from 60% in 2016), with 23% of Buyers indicating extreme confidence that they will make an acquisition in the next 12 months.
The market is poised for much more selling activity than was seen last year. More than half of the market is currently involved in or open to selling in 2017, up from 34% in 2016.
Sellers have held out in recent years, looking for the right time to take advantage of increasing valuations. Now there is a general sentiment that valuations have reached a peak, which has Sellers prepared for a busy year. As a result, 25% of Sellers are extremely confident that their organization will be acquired in 2017.
Like Buyers, Sellers have struggled to grow organically for years, leading to increased fatigue throughout the market, which is now contributing to the need to get a deal done. This is especially true among firms in the lower half of the market (36% vs. 25% in the upper half) where more executives will consider retirement in the next couple of years.
Owner Fatigue is an Emerging Driver of M&A
Top 3 Reasons for Selling (Lower-Mid Market Respondents $5MM to <$25MM)
1. To provide liquidity to owners 50%
2. To maximize value/take advantage of current market value 38%
3. To alleviate owner fatigue 36%
Window of Opportunity is Closing
This year, nearly 6 in 10 Sellers believe that there will be a significant financial crisis in the next 3 years, which has instilled an even greater sense of urgency among those selling.
Buyers Will be Busy in 2017
Nearly three-quarters of mid-market executives are currently involved in or open to making a deal in 2017, up from 60% in 2016.
New M&A Objectives are Emerging
Lower mid-market decision makers are more focused on adding adjacent products and services that will improve operational efficiencies and help them meet expectations set forth by the market. With many organizations struggling to stimulate growth internally, M&A is seen as the only outlet for showing real revenue growth in the years to come.
Top 3 Reasons for Buying (Lower-Mid Market Respondents $5MM to <$25MM)
1. To increase revenues 70%
2. To improve operational efficiencies 33%
3. To better meet market expectations 33%
Transformative Deals are Still Preferred
While larger, transformative deals are still preferred, bolt-ons will be more widely considered throughout 2017, especially among firms in the lower half of the market (33% prefer bolt-on acquisitions).
2017 is Well-Positioned for the Buyer
Sellers are expecting valuations to remain stagnant in 2017 (54% believe valuations will stay the same), indicating the upward trend for valuations in the mid-market may be coming to an end. Based on this belief, Sellers will look to capitalize on this window of opportunity before it closes and valuations eventually begin to taper off.
Third Party Support is a Must
Approximately 90% of all decision makers — whether Buyers or Sellers — will be looking to engage a financial intermediary or third party as they pursue M&A activity in the year to come. Third parties will be essential in helping decision makers manage valuations, overcome regulatory concerns and close a deal in 2017.
Buyers Seek Certainty of Execution and Sellers Look to Maximize Value
Buyers are looking for certainty of execution in hopes that they can finally show some real revenue growth in the years to come, and Sellers are looking to maximize value as they view their window of opportunity as coming to a close.
Download the full report at:
https://citizenscommercial.com/1365/index.php?c=CTZ1524A000&tab=2
