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Citizens Mid-Market M&A Outlook Finds Companies Seek ‘Transformative’ Deals in 2016

January 12, 2016, 07:38 AM
Filed Under: Industry News

Citizens Commercial Banking’s fifth-annual Middle Market M&A Outlook released today shows more than half of mid-sized U.S. companies are looking for transformative deals to help them jump-start revenues in the stabilized, but slow-growing U.S. economy.

The Citizens study takes a look every year at the appetite for mergers and acquisitions among middle market companies – companies with annual revenue between $5 million and $2 billion – that are key creators of jobs and drivers of economic activity in the United States. Citizens Commercial Banking serves thousands of middle market clients in a wide range of industries across the country.

Among the larger companies surveyed, with annual revenue between $25 million and $2 billion, 59 percent say they are looking for transformative deals. More than half of smaller firms surveyed, with annual revenue of $5 million to $25 million, also are looking for deals, with 53 percent saying they are on the hunt.

“Our 2016 survey is a call to action for buyers and sellers as growth through acquisition has become the strategy of choice,” said Bob Rubino, Executive Vice President and Head of Corporate Finance and Capital Markets at Citizens Commercial Banking. “Many middle market business executives are looking for transformative deals. In the immediate aftermath of the Great Recession, preserving liquidity and repairing balance sheets were important, but now company stakeholders want to see significant growth. Many firms have already reduced costs, right-sized their operations and rehabilitated their balance sheets. The best – or the only – way left to grow in today’s economy is through acquisition, preferably larger, more transformative acquisitions.”

“For sellers, it may be time to get off the fence as market volatility is increasing. In many cases, sellers’ multiples have leveled off,” Rubino added. “Last year’s record-breaking $3.8 trillion in M&A, which featured several mega-deals among very large corporations, seems to have had an impact on the thinking of many middle market executives. Many feel this year could be their year to make a deal. This is consistent with what we’re seeing with an increasing number of Citizens Commercial Banking clients inquiring about, or currently engaged in, M&A activity.”

Citizens Commercial Banking’s Middle Market M&A Outlook, now in its fifth year, provides insight into the behaviors, attitudes and perceptions of business owners and CEOs as they consider their corporate development strategies for the year ahead. Other key findings from this year’s survey include:

  • Among upper middle market firms, 32 percent are currently involved in an acquisition and another 31 percent are open to considering one.
  • Fifty-four percent of upper middle market potential buyers say they are more confident today than they have been in the past that growth through outside investment is an appropriate strategy.
  • Top concerns among buyers are “inherited liability” and “overpaying for an acquisition.” Smaller middle market firms are also worried about losing key employees during an acquisition, while larger firms are worried about market fluctuations that could impact deal values.
  • Eighty-three percent of upper middle market potential sellers report that they have been either extremely (25 percent) or moderately (58 percent) impacted by volatility in the global economy.
  • Forty-one percent of upper middle market potential sellers fear a significant financial crisis in the next three years.
  • Top reasons for selling are to provide liquidity for owners and to take advantage of current market value. Forty percent of lower middle market owners also cite “fatigue.”
  • The greatest worry among middle market sellers is being underpaid for their firms.
  • Fifty-six percent of upper middle market sellers say they believe asset valuations will stay the same (42 percent) or even decrease (14 percent) over the next year.
  • Both buyers and sellers in the middle market turn to external advisors such as commercial bankers for a range of M&A services such as valuation, opportunity assessment, due diligence, strategy and financing.

Survey Methodology

In late 2015, Citizens Commercial Banking conducted a survey of 598 U.S.-based middle market business decision-makers who are open to or currently engaged in some form of corporate development activity, including mergers, acquisitions and raising capital. For the purposes of this survey, middle market businesses are defined as private or public companies with annual revenue between $5 million and $2 billion.

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