01/23/2018

Economic Optimism Fuels 2018 Middle Market Deal-Making Environment

7th annual survey finds seller’s market persists despite ‘Baby Boomer owner overhang’

PROVIDENCE, R.I.--(BUSINESS WIRE)-- Interest among middle market companies in both buying and selling has increased significantly in the past year, fueled by rising valuations, economic optimism and an ongoing drive to find growth, according to the seventh annualCitizens Commercial Banking Middle Market M&A Outlook. The bank’s survey of 400 business leaders shows a boost both in activity and confidence over 2017.

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Ralph M. Della Ratta, head of M&A Advisory (Photo: Business Wire)

Ralph M. Della Ratta, head of M&A Advisory (Photo: Business Wire)

Both sellers and buyers agree that the seller’s market of the last few years will likely continue. Fifty-six percent of sellers are either currently involved in or open to M&A activity in 2018, up from 48 percent in 2017. Seller confidence is also on the rise as 35 percent of sellers are highly confident they will complete a deal this year, compared with 25 percent in 2017.

“Our survey shows the number of companies interested in selling continues to trend upward,” said Ralph M. Della Ratta, head of M&A Advisory, Citizens Capital Markets. “There is still a Baby Boomer overhang with a lot of owners waiting for the right time to sell. Several factors such as the tax reform law and historically high valuations certainly give them a great opportunity to make a deal.”

Continued Della Ratta: “While these high valuations are giving potential buyers some pause, more acquirers see the value of M&A as a growth strategy.”

The Citizens study examines the annual appetite for mergers and acquisitions among middle market companies – companies with annual revenue between $25 million and $3 billion – that are key creators of jobs and drivers of economic activity in the United States.

Acquisition continues to be an important growth strategy for many companies as buyers are planning to be more active in 2018, the survey found. About three-quarters of buyers report being currently involved in or open to an acquisition. Buyer confidence is also significantly stronger heading into 2018 with nearly half of buyers (47 percent) confident that growth through outside investment is an appropriate strategy, versus 30 percent in 2017. Forty percent of buyers are extremely confident that an acquisition will be completed in 2018, compared with just 23 percent in 2017.

Other key findings from this year’s survey include:

  • Buyers and sellers entered 2017 with expectations of generally stable to increasing valuations. According to the survey, both groups appear to be even more aligned heading into 2018. Approximately 39 percent of sellers are bullish on rising valuations, while 41 percent of buyers expect to pay more for acquisitions that fit their target criteria.
  • An abundance of acquisition capital (high demand) and a dearth of quality targets (low supply) has made for a very favorable seller’s market over the past four years. Heading into 2017, buyers and sellers alike assumed that this imbalance would begin to even out. And while most participants expect that the millions of aging baby boomer business owners who have put off retirement will eventually come to market and boost the level of supply, both groups appear less confident of this heading into 2018.
  • Once the results of the 2016 presidential election were known, an uptick in economic optimism among mid-market executives occurred. Almost a year into the new administration, respondents appear to be even more bullish on stable to improving economic conditions for 2018.
  • Similar to the uptick in economic optimism post-election, it appears middle market executives’ fears of a near-term financial crisis have abated. Pre-election, almost half of the respondents believed we were in line for a financial recession sometime in the next three years. Post-election, and now heading into 2018, just under 40 percent hold a similar view.
  • The incidence of unsolicited contact with both buyers and sellers has risen considerably over the past three years, as parties are pursuing any means possible to avoid a competitive situation. This persistent outreach is inducing mid-market executives to more seriously consider their M&A options.
  • Regardless of size, sellers are pursuing opportunities in this market for common reasons, namely liquidity and to take advantage of historically high valuations. Other motivations include growing revenue, capacity and their employee base.

Citizens is a trusted strategic and financial adviser, consistently delivering clear and objective advice. The Citizens Commercial Banking approach puts clients first by offering great ideas combined with thorough market knowledge and excellent execution to help our clients enhance their business and reach their potential.

For more information, please visit the Citizens Commercial Banking website. For a copy of this year’s survey, please go to Middle Market M&A Outlook 2018.

About Citizens Financial Group, Inc.
Citizens Financial Group, Inc. is one of the nation’s oldest and largest financial institutions, with $152.3 billion in assets as of December 31, 2017. Headquartered in Providence, Rhode Island, Citizens offers a broad range of retail and commercial banking products and services to individuals, small businesses, middle-market companies, large corporations and institutions. Citizens helps its customers reach their potential by listening to them and by understanding their needs in order to offer tailored advice, ideas and solutions. In Consumer Banking, Citizens provides an integrated experience that includes mobile and online banking, a 24/7 customer contact center and the convenience of approximately 3,300 ATMs and approximately 1,200 branches in 11 states in the New England, Mid-Atlantic and Midwest regions. Consumer Banking products and services include a full range of banking, lending, savings, wealth management and small business offerings. In Commercial Banking, Citizens offers corporate, institutional and not-for-profit clients a full range of wholesale banking products and services, including lending and deposits, capital markets, treasury services, foreign exchange and interest rate products, and asset finance. More information is available at www.citizensbank.com or visit us on Twitter, LinkedIn or Facebook.

This is for informational purposes only, and is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This material contains forward looking statements and there can be no guarantee that they will come to pass. Information contained herein is based on data from multiple sources and Citizens makes no representation as to the accuracy or completeness of data from sources outside of Citizens.

©2018 Citizens Financial Group, Inc. All rights reserved. Banking products and services are offered by either Citizens Bank, N.A. or Citizens Bank of Pennsylvania, Member FDIC. Securities products and services are offered through Citizens Capital Markets, Inc., Member FINRA, SIPC. Citizens Bank & Citizens Commercial Banking are brand names of Citizens Bank, N.A. and Citizens Bank of Pennsylvania. Western Reserve and Citizens Capital Markets are brand names of Citizens Financial Group, Inc.

Citizens Financial Group, Inc.
Frank Quaratiello, 617-725-5851
[email protected]

Source: Citizens Financial Group, Inc.