Search
Close this search box.
Search
Close this search box.

Expect More Mid-Market Divestitures in 2014

Business owners are more interested in selling part of their companies rather than the entire enterprise. They’re also more inclined to divest significant assets to make investments rather than take on debt, and that 2014 and 2015 will be a buyers’ market. CEOs keen on opportunistic acquisitions may benefit.

The report, conducted in late 2013 and the third such endeavor by RBS Citizens, surveyed 460 U.S.-based executives who are open to or currently engaged in some sort of corporate development activity, including mergers, acquisitions and raising capital. With a sense of stability returning to the economy middle market companies remain open to buying or selling but are prioritizing opportunities to re-invest in their existing operations.

“Our latest survey indicates that the appetite for acquisitions and sales remains strong, but businesses are taking a more strategic, less urgent approach, which reflects a strengthening economy,” said Bob Rubino, EVP and head of corporate banking and capital markets for RBS Citizens. “As more middle market companies see top-line growth, owners are looking for strategic sales or acquisitions that can augment their re-investment strategy and help keep their momentum going.”

These findings mirror other reports that suggest that critical sectors of the U.S. economy such as healthcare, retail food and energy will see continued or renewed M&A activity in 2014, according to business leaders at CIT Group. The middle market is ripe for a more fruitful M&A environment in 2014, according to Thomson Reuters LPC. The persistent fog of economic and political uncertainty that has stymied investment is lifting, giving way to improved visibility for lenders, borrowers and private equity sponsors alike. Increased economic confidence, more certainty with respect to Fed tapering, and fewer concerns about future government budget stalemates are paving the way for greater willingness to buy, sell and invest in middle market companies.

If in recent quarters companies were primarily focused on cost savings, they are shifting their attention to strategic growth opportunities. There is an abundance of capital – in the hands of both debt and equity investors – waiting on the sidelines, which will help buoy M&A activity.

Key findings from this year’s RBS Citizens survey include:

  • Sellers are more interested in selling part of their business than the whole.
  • While interest in raising capital remains steady, companies are less likely to take on debt and are more likely to accumulate earnings, sell a business unit or divest significant assets to make investments.
  • Executives believe both this year and next will be a ‘buyer’s market.’
  • Nine of ten survey respondents intend to engage a ‘friend in the deal’ – an outside partner – to provide guidance throughout the M&A process; half of all buyers and 40% of sellers are considering partnering with a commercial bank.

In late 2013, RBS Citizens conducted a survey of 460 U.S.-based middle market business executives that are open to or currently engaged in some form of corporate development activity, including mergers, acquisitions, and raising capital in the New England, Mid-Atlantic and Mid-West regions. For the purposes of this survey, middle market businesses have annual revenues of between $5 million and $2 billion.

The Sellers’ Perspective:

Based on this year’s survey results, the proportion of current and potential sellers in the market remains unchanged since 2012, but their motivations and intentions have shifted.

  • Although just 6% 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:

While fewer acquisitions were in process at the end of 2013 than in the year before, 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.
  • Respondents plan to make fewer purchases in 2014 but expect to spend more on each; the majority of executives anticipate spending between $10 million and $25 million.

 

Given the complexity of an M&A transaction, from ensuring proper valuation to identifying the best strategic buyers or acquisition targets, the process has become more labor-intensive. Most companies without an experienced internal team are relying on an outside advisor.

  • Of organizations who intend to engage external support for their deal-related corporate development needs, commercial banks are the most popular choice, followed by investment banks and business brokers.
  • Nearly half (47%) of respondents rate commercial banks as ‘excellent’ in regards to their corporate development capabilities, compared to 35% for investment banks and 26% for both private equity and venture capital firms.
  • Valuation, financing, opportunity assessment and due diligence are the areas where these companies are looking for the most help.

Read: citizensbank.com.

Read: https://www.reuters.com/article/2014/01/15/mid-market-outlook-idUSL2N0KP13S20140115


MORE LIKE THIS

  • Get the CEO Briefing

    Sign up today to get weekly access to the latest issues affecting CEOs in every industry
  • upcoming events

    Roundtable

    Strategic Planning Workshop

    1:00 - 5:00 pm

    Over 70% of Executives Surveyed Agree: Many Strategic Planning Efforts Lack Systematic Approach Tips for Enhancing Your Strategic Planning Process

    Executives expressed frustration with their current strategic planning process. Issues include:

    1. Lack of systematic approach (70%)
    2. Laundry lists without prioritization (68%)
    3. Decisions based on personalities rather than facts and information (65%)

     

    Steve Rutan and Denise Harrison have put together an afternoon workshop that will provide the tools you need to address these concerns.  They have worked with hundreds of executives to develop a systematic approach that will enable your team to make better decisions during strategic planning.  Steve and Denise will walk you through exercises for prioritizing your lists and steps that will reset and reinvigorate your process.  This will be a hands-on workshop that will enable you to think about your business as you use the tools that are being presented.  If you are ready for a Strategic Planning tune-up, select this workshop in your registration form.  The additional fee of $695 will be added to your total.

    To sign up, select this option in your registration form. Additional fee of $695 will be added to your total.

    New York, NY: ​​​Chief Executive's Corporate Citizenship Awards 2017

    Women in Leadership Seminar and Peer Discussion

    2:00 - 5:00 pm

    Female leaders face the same issues all leaders do, but they often face additional challenges too. In this peer session, we will facilitate a discussion of best practices and how to overcome common barriers to help women leaders be more effective within and outside their organizations. 

    Limited space available.

    To sign up, select this option in your registration form. Additional fee of $495 will be added to your total.

    Golf Outing

    10:30 - 5:00 pm
    General’s Retreat at Hermitage Golf Course
    Sponsored by UBS

    General’s Retreat, built in 1986 with architect Gary Roger Baird, has been voted the “Best Golf Course in Nashville” and is a “must play” when visiting the Nashville, Tennessee area. With the beautiful setting along the Cumberland River, golfers of all capabilities will thoroughly enjoy the golf, scenery and hospitality.

    The golf outing fee includes transportation to and from the hotel, greens/cart fees, use of practice facilities, and boxed lunch. The bus will leave the hotel at 10:30 am for a noon shotgun start and return to the hotel after the cocktail reception following the completion of the round.

    To sign up, select this option in your registration form. Additional fee of $295 will be added to your total.