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RBS Citizens survey finds half of middle market executives actively engaged in M&A

While some see conditions for M&A as "ripe," most middle market executives cite organic growth as their top priority, according to RBS Citizens report

PROVIDENCE, R.I. (November 9, 2011) Citing historically low asset prices and strong balance sheets, half of all middle market executives responding to a recent RBS Citizens survey described themselves as active in M&A activity, according to a report released today by the Commercial Banking division of Citizens Financial Group.

At the same time, when asked about their firm’s top priorities, 60 percent of those surveyed said "organic growth" and 53 percent cited cost-cutting. Only 29 percent described M&A as a top priority. More than a third of the respondents reported they had enough cash to acquire assets of $2 million or more without incurring debt or injecting equity.

"We see in this report confirmation that organic growth and cost containment remain important priorities for companies in today’s economic environment, but companies also are actively pursuing M&A opportunities in the Middle Market," said Robert Matthews, Vice Chairman of RBS Citizens and Head of Commercial Banking for Citizens Financial Group. "We sponsored this research to help our commercial customers get a better understanding of the M&A environment as they chart their course through the current economy. As they contemplate the potential for new transactions in the coming months, we hope the findings and recommendations in this report help them determine the strategies that are right for their companies."

RBS Citizens research partner Forbes Insights surveyed 432 executives from middle market companies with revenues between $5 million and $500 million in September to get their read on the M&A landscape. The survey was conducted with executives from a wide spectrum of industries, including manufacturing, professional services and financial services. The range of executives surveyed included Chief Executive Officers, Owners, Chief Financial Officers and Senior Vice Presidents. Eighty-three percent of respondents worked at privately owned companies and over half the companies represented had a size of at least $25 million.

Among the key findings:

  • In addition to more than half being active in M&A, one in three executives said they are likely to acquire one or more significant assets in the next year;
  • One in four said they were actively pouring over financial statements of potential partners right now;
  • Though views were mixed about whether asset prices were headed up or down over the next year, 50 percent of the respondents most active in M&A were convinced they would increase, creating an incentive for them to move now.

In addition to the survey results, the RBS Citizens report makes use of follow-up interviews with respondent and interviews with key experts to recommend current M&A best practices for middle market companies. Among the issues identified in the report:

  • More than two out of three executives believe potential synergies that lead to lower costs or higher revenues were essential – that these synergies were a primary reason for merging or acquiring;
  • That said, experts and executives believe M&A targets must relate to the core business of the acquirer or merger initiator. Deals must create a real strategic fit;
  • Executives recognize the need for outside help in executing deals – consultants in valuation, financing, and due diligence are seen as vital, as are external legal experts. Commercial banks topped the list of outside providers, followed by accounting firms, investment banks and boutique providers;
  • Fifty-eight percent of the executives interviewed consider IT integration to be hardest challenge in any transaction, far outpacing other hurdles, such as merging sales and marketing, product development, and manufacturing.

To download the full M&A Report, go to citizensbank.com/rbscitizens or charterone.com/rbscitizens.

About Citizens Financial Group, Inc.
Citizens Financial Group, Inc., is a $131 billion commercial bank holding company. It is headquartered in Providence, R.I., and, through its subsidiaries, has more than 1,500 branches, approximately 3,900 ATMs and more than 20,000 colleagues. Its two bank subsidiaries are RBS Citizens, N.A., and Citizens Bank of Pennsylvania. They operate a 12-state branch network under the Citizens Bank brand in Connecticut, Delaware, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island and Vermont; and the Charter One brand in Illinois, Michigan and Ohio. CFG has non-branch retail and commercial offices in more than 30 states. CFG is owned by RBS (the Royal Bank of Scotland Group plc).