Survey: M&A activity will be strong in ’15

Cautious optimism for a strengthening U.S. economy, paired with a large demographic of people entering retirement, is driving more middle-market executives toward making, or considering, strategic acquisitions this year, according to a recent survey.
The fourth annual Middle Market M&A Outlook shows that one-quarter of executives surveyed say their companies are currently involved in acquiring another firm, marking a 17 percent increase from a year earlier.
The survey, conducted by Citizens Commercial Bank, includes 469 participating business executives from New England, the Midwest and the mid-Atlantic regions open to, or currently engaged in some form of corporate-development activity, which includes mergers, acquisitions and raising capital.
Marc Paulhus, president of Citizens Bank Rhode Island, says there are a number of contributing factors encouraging executives to act this year.
“The economy is getting better, so these people are gaining more confidence and putting themselves out there to make an acquisition to better position their companies,” Paulhus said.
In Rhode Island, companies are joining the trend.
Starkweather & Shepley Insurance Brokerage Inc., based in East Providence, expanded operations into Florida last summer and acquired Community Imperial Agency in Naples, Fla., in December.
The insurance broker is Rhode Island’s fifth-fastest-growing private business of companies with total revenue between $25 million and $75 million, according to PBN’s 2015 Book of Lists. The company’s growth percentage from 2011-13 increased 21 percent.
Natale P. Calamis, Starkweather & Shepley CEO, says the company has been averaging about two acquisitions a year and says already they’re looking at seven more possibilities this year. The company’s growth in the last six years has been fueled partly by mergers and acquisitions, he added. “For us, having seven on the table is crazy,” Calamis said. “We’ve got a strong, aggressive budget looking into ’15.”
KLR, an accounting and business advisory firm with offices in Providence and Newport, merged with Boston-based Freshman & Ferrero PC on Jan. 1. The merger, according to KLR, was done to expand services with Freshman & Ferraro, which specializes in international taxation.
The global law firm Locke Lord LLP, headquartered in Providence, finalized a merged with Edwards Wildman Palmer LLP in January to create Locke Lord Edwards. The deal was announced in September and the firm now has more than 1,000 lawyers in 23 cities across the globe, with $675 million in gross revenue. The merger aims to help Locke Lord expand services in its overseas market, which – according to the survey – is overall a tempered area of interest.
A midmarket company is defined in the survey as a business making between $5 million and $2 billion in annual revenue. The data was collected last September and nearly half of the larger midmarket companies – businesses with annual revenue between $100 million and $2 billion – are actively buying, according to the survey.
“Our 2015 survey indicates that the appetite for acquisitions and sales has increased since last year,” said Bob Rubino, executive vice president and head of corporate finance and capital markets for Citizens Commercial Bank.
An interesting takeaway, Paulhus added, is that some baby boomers are reaching the age of retirement, which means a larger demographic of business owners could be looking to cash out on their life’s work. Indeed, seven in 10 business owners consider their targeted retirement date a “key factor” in determining a time frame for selling. Approximately 38 percent of participants said they believed merger-and-acquisition activity in their industry would increase in 2015 as a result of industry leaders nearing retirement.
The increased interest, Paulus says, is in part fueled by “cautious optimism” among businesses and their ability to execute mergers and acquisitions this year.
“There is a nice trend going on in the U.S.,” Paulhus said.
Another survey takeaway, Paulhus said, is the amount of companies raising capital, which has risen from a year earlier. The largest increase is from companies with revenues greater than $25 million, but about one-quarter of all middle-market companies are actively engaged in raising money, while another 40 percent are looking for opportunities to do so.
“Companies seem to be taking advantage of continued low interest rates, which they feel will rise eventually,” according to the survey. “Middle-market executives feel confident about their ability to raise the desired capital and are bullish about market trends.”
About 60 percent of executives expect the market for raising capital and seeking outside investment to improve in 2015. The top reasons for raising capital, according to the survey, are capital expenditures – 51 percent – and acquisitions, or to make the company more attractive to buyers – 39 percent.
“[Executives] are looking to grow their revenue and a big factor is low interest rates along with an ability to raise capital and the gain in confidence,” Paulhus said. •

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