PROVIDENCE – Merger and acquisition activity among middle-market companies will hold steady or tick up slightly in the next year, with a market that continues to favor sellers, according to Citizens Bank’s 2020 Mergers & Acquisitions Outlook.
The Providence-based bank’s report reflects survey results of more than 600 C-suite executives at middle-market companies. Like 2019, mid-market leaders expect favorable economic conditions for merger and acquisitions activity although they no longer feel a sense of urgency to close the deal as soon as possible due to more confidence in the economic outlook.
“We expect a more sustainable, long-term pace,” said Jim Childs, who co-leads M&A advisory for Citizens Capital Markets, adding that the record-level activity that characterized previous yeas was perhaps too rapid and high of a volume.
Nearly two-thirds of business leaders surveyed said 2020 will be a strong year for mergers and acquisitions, citing an expanding U.S. economy, favorable tax changes and accommodative capital markets, according to the survey. However, pools of prospective buyers and sellers have both shrunk compared to a year ago and fewer sellers are looking to sell their entire business versus a portion.
Demand for deals still exceeds supply, which combined with high valuation means the next year will continue to be a seller’s market. Nearly half of all survey respondents, buyers and sellers, anticipate valuations to climb in the next year, with prices driven up by historically low interest rates and influx of capital to private equity firms.
Fast growth in the technology and health care sectors will drive up valuations in those industries in particular, according to Childs.
Childs advised prospective sellers to consider the options available to them, including selling a minority or majority of the company instead of the entire business or borrowing money to raise capital. He also urged sellers to use advisers to prepare them for extensive due diligence periods.
“Buyers are more discriminating than ever so the bar is really high for sellers,” Childs said.
Buyers, on the other hand, should be prepared for stiff competition and pricey assets, Childs said.
The survey was fielded in November and December to C-suite executives at U.S. companies with annual revenue from $50 million to $3 billion. For more on survey results, visit https://citizenscommercial.com/442/MnA_Outlook_2020_4pager.pdf
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