Tech will Lead Mid-Market Growth Sectors in 2017

Revenue growth for the third quarter of 2016 was near 6.3%, and two-thirds of middle-market companies are planning to invest extra dollars in future initiatives. Many mid-market companies are still operating with the intention of merging or being acquired in the future.

Some of the biggest sectors to watch for mid-market M&A activity will be in technology (cybersecurity tools, cloud-computing services, medical devices), as well as agricultural chemicals, consumer goods packaging, construction materials and aircraft parts and services.

Most of the action in 2016 has been in technology. With the threat of cyber attacks on the rise, governments, private industry and consumers have been scrambling for more protections against increasingly-advanced attacks. Mid-market companies have been leveraging their nimbleness and innovative cultures to lead the development of new cybersecurity technologies.

Companies like Cisco and Symantec have been acquiring dozens of smaller organizations to meet demand. Cisco recently acquired cloud software security e-startup CloudLock for $293 million and network monitoring firm Lancope for more than $354 million. “Companies offering [cybersecurity] protections have become highly sought targets for acquisition,” said Mergers & Acquisitions.

These tech deals have driven up M&A activity to new records, making the third quarter of 2016 a “blockbuster” for global technology M&A value. Many of these deals also are being done by “non-tech” companies such as Verizon—which is using M&A as an entree into IoT, and Walmart, which recently acquired Jet.com for $3.3 billion. “High on their list of interests is building [a] repertoire [of] Internet of Things, along with cloud, big data and mobile,” said Forbes.

The Citizens Commercial Banking Middle Market M&A Outlook surveyed 600 business leaders and also showed that 2017 should be an active year for mergers and acquisitions. Bob Rubino, executive VP and head of Corporate Finance and Capital Markets at Citizens Commercial Banking, said the momentum is being fueled by “owner fatigue or concern about the future” and a big pool of companies seeking acquisitions as a way to grow products, service lines and revenues. “We’re seeing sellers looking for exits and an uptick in buyers seeking growth,” said Rubino.

He said there also may be “pause” until the impact of the election becomes clearer on issues like capital gains, estate taxes, regulations and future stimulus spending. Rubino said there is a sense among mid-market decision makers that company valuations may have not yet peaked.