2017 to be a Good Year for Mid-Market M&A Activity

“Two-thousand-sixteen was a year for many to act on strategic transactions,” said Bob Rubino, executive vice president and head of corporate finance and capital markets at Citizens Commercial Bank. The bank surveyed 600 C-suite executives about their expectations for the new year. Rubino said that after several years of sluggish growth fueled largely by operational streamlining and internal efficiency measures, many have come to realize that M&A may be the best strategy to achieve meaningful growth or to meet shareholder expectations.

“This same sense of urgency seems to hold true for 2017,” he said. “Buyers are feeling increased pressure to show growth and sellers are eager to get the most for their business while valuations are still high.”

The report showed that while there’s a greater sense of urgency to close deals, “the post-election environment bears watching.” Some had an expectation of higher capital gains taxes and thought their window of opportunity to close deals was evaporating. And while 2016 showed that confidence didn’t always translate into action, the survey indicates that sellers are even more optimistic heading into 2017. Slightly more than half of sellers are involved in or open to making a deal this year (up from 34% in 2016). Meanwhile, a quarter says they are “extremely confident” their organization will be acquired in the coming year. On the buyers’ end, nearly three-quarters said they are involved in or open to making an acquisition, while almost a quarter said they are “confident” they will make one within the next 12 months.

The election has certainly influenced M&A activity over the past few months. A slowdown in deals in November is being called a temporary lull due to uncertainty. Yet there’s now growing belief that the incoming administration should help boost deal making in the new year. Mergers & Acquisitions found that nearly half of the 250 survey respondents said the election outcome would result in an increase in mid-market M&A.

A potential lowering of capital gains and estate taxes, loosening of regulations and future stimulus spending have led some analysts to point to an accelerated economic growth. While mid-markets are still eager to sell, Rubino said there is a sense among decision makers that some company valuations may have not yet peaked.

Tech is one sector that is especially thriving. GGV Capital co-founder Hany Nada said that the current level of tech activity is the highest he has seen in almost 20 years.

“There’s something going on in the macro environment that’s compelling and giving strategic buyers much more risk to tolerance to acquire companies,” Nada said.