Middle market company executives remain skittish about taking on new debt and are less interested in selling their entire business, as a slow recovering economy continues to create a cautious merger and acquisition environment, a new survey says.
The RBS Citizens Middle Market M&A Outlook for 2014, which surveyed 460 companies in New England, the mid-Atlantic, and Midwest with between $5 million and $2 billion in annual revenues, found that midsize firms remain open to buying or selling but are prioritizing opportunities to reinvest in their existing operations.
Surveyed executives believe both 2014 and 2015 will remain a buyer’s market, while sellers are more interested in selling part of their business rather than the entire company.
Meanwhile, interest in raising capital remains steady, but companies are less likely to take on debt and more likely to accumulate earnings, sell a business unit, or divest significant assets to make investments, the survey found.
Here are some other findings:
The Sellers’ Perspective
The proportion of current and potential sellers in the market remains unchanged since 2012, but their motivations and intentions have shifted.
• Although just 6 percent of middle market executives are currently involved in a sale, more than one-third indicate they would be open to a deal if approached by a buyer with a strategic fit.
• While sellers were willing to sell it all a year ago, a partial sale — selling an operating asset or division — has become more appealing than selling off the entire organization.
• Being undervalued and underpaid by acquiring firms remains sellers’ primary concern; partial sellers are increasingly concerned about meeting post-acquisition revenue targets.
The Buyers’ Perspective
Fewer acquisitions were in process at the end of 2013 compared to a year earlier, but deals this year are expected to be larger and more strategic.
• Less urgency in the market has translated into fewer current deals in process in early 2014 and more potential buyers are on the sidelines open to, but not actively seeking buying opportunities.
• Buyers are less reliant on M&A as a means of growing; their goals are now more likely to be expanding geographic reach, increasing production and product capabilities, and accelerating organic growth.
