Mid-Market Companies Are Pursuing M&A as a Growth Tactic, Survey Says

At a time when corporate balance sheets are rock solid, interest rates remain enticingly low and the deal environment is booming, perhaps it’s not surprising to learn that some of the most ready buyers of private companies are in fact, private companies themselves.

In a recent survey of 100 advisors, investors and buyers of private middle market companies, 41 percent say that M&A is the primary strategy being used by companies to grow in 2015. The survey, conducted by Axial, an online platform that connects private companies to capital, suggests that organic strategies are less in favor than a more aggressive recipe for growth. Twenty-two percent of respondents pointed toward product and customer expansion as companies’ number one growth strategy and 18 percent believed companies would move into new geographic markets to achieve growth.

“Forty-one percent say that M&A is the primary strategy being used by companies to grow in 2015.”

Respondents also believe that corporate mergers will be the deal type with the highest volume this year (36 percent), compared to transactions involving debt (31 percent), equity financings (22 percent) or asset acquisitions and sales (12 percent).

“Corporations of all sizes are taking advantage of a time where they have the ability to go out, raise relatively inexpensive capital, and start buying up companies,” said Allison Tepley, VP of Marketing at Axial. “On Axial, we’re seeing a wide range of corporate acquirers looking for deals – from large public companies knocking on their upstart competitors’ doors to mid-sized firms joining up with companies that can help them capture additional market share or expand their footprint.”

When evaluating the best companies to acquire, these strategic buyers, as acquisitive corporations are called, are more concerned with the record of growth a target company can boast than the rest of the buyers’ market. While private equity firms cite the existence of a strong management team as the most important metric of potential success when evaluating middle market companies for investment or acquisition, 50% of corporates say a strong record of growth is the key metric.

Ms. Tepley added, “Sellers who can point to impressive growth results, particularly over a volatile decade, are in a great position to attract buyers who may find it worth it to pay a premium for the synergy gained by acquiring these types of companies.”

Click here for full survey results.


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