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Middle Market M&A Is Expected to Remain Active This Year

The global stock-market swoon sent many would-be corporate acquirers and merger targets scurrying to the sidelines in the first part of 2016, as a combination of losses in valuation and overall volatility cool the M&A market at least for a while.

But if there’s one force considered likely to lead the charge in M&A activity as the year continues, it’s the middle market.

Mid-market and cross-border deals are expected to increase proportionally compared with giant merger deals, J.P. Morgan Chase & Co. finance chief Marianne Lake told investors on a conference call earlier this month.

“Obviously, volatility can dampen the confidence of boards and CEOs,” Lake said. “We do need to see some of the stability come back” before companies begin to announce deals again.

“53 percent of CEOS of smaller mid-market firms are looking for M&A deals.”

More than half, or 59%, of larger companies surveyed, with annual revenues between $25 million and $2 billion, were looking for “transformative” deals this year, according to Citizens Commercial Banking (a division of Rhode Island-based Citizens Financial Group), while 53% of smaller mid-market firms, with revenues of up to $25 million, were looking for deals as well.

“For sellers, it may be time to get off the fence as market volatility is increasing,” said Bob Rubino, head of corporate finance and capital markets for Citizens, which serves thousands of middle-market companies in a wide range of industries across the country. Last year’s record-breaking $3.8 trillion in M&A in the United States “seems to have had an impact on the thinking of many middle-market executives.”

Assuming financial markets stabilize somewhat—even at a lower level reflecting investor concern over a slowing global economy, slumping prices for oil and other commodities, and continued geopolitical risks—over the coming days and weeks, there are some factors relatively unique to mid-market companies that will compel many CEOs and business owners to sniff M&A possibilities again.

One such factor is the huge number of baby boomer company owners who are looking at selling their companies as an exit strategy to retirement, experts say. In the Citizens Commercial survey, the top reasons for mid-market owners to consider selling out are to provide liquidity, to take advantage of current market value—and to end the “fatigue” of running and growing a company.

Another factor that surely will tend to fuel M&A activity in 2016 for all sizes of companies is the record stash of cash by U.S. corporations and private-equity firms, which is now around $2 trillion.

“Private equity firms are asking where to place cash for their investors,” Bill Ridenour, president of Polymer Transaction Advisors in Wapiti, Wyo., told “They have more money than they know what to do with.”

And indeed, expectations in plastics manufacturing are typical of those in many other sectors that are dominated by mid-market participants. The number of global plastics and packaging deals has rung 300 or more every year since 2007, the publication reported, a rare occurrence in previous years.

Still, noted Thomas Blaige, chairman and CEO of Blaige & Co., “We’re in a cyclical peak in M&A. People are looking for something to scare us into a downturn. As we get closer to the election, there could be signs of problems in the economy that could trigger a downturn in M&A.”

Until then, however, it seems full speed ahead for mid-market companies and M&A.


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