RBS Citizens Middle Market M&A Outlook 2014 indicates a more strategic approach in the year ahead
Appetite for activity persists as companies react to strengthening economy by prioritizing re-investment in existing operations
BOSTON - With a sense of stability returning to the economy and to corporate boardrooms, the RBS Citizens Middle Market M&A Outlook 2014 released today reveals that middle market companies remain open to buying or selling but are prioritizing opportunities to re-invest in their existing operations.
“Our latest survey indicates that the appetite for acquisitions and sales remains strong, but businesses are taking a more strategic, less urgent approach, which reflects a strengthening economy,” said Bob Rubino, Executive Vice President and Head of Corporate Banking and Capital Markets for RBS Citizens. “As more middle market companies see top-line growth, owners are looking for strategic sales or acquisitions that can augment their re-investment strategy and help keep their momentum going.”
Key findings from this year’s survey include:
- Sellers are more interested in selling part of their business than the whole.
- While interest in raising capital remains steady, companies are less likely to take on debt and are more likely to accumulate earnings, sell a business unit or divest significant assets to make investments.
- Executives believe both this year and next will be a ‘buyer’s market’.
- Nine of ten survey respondents intend to engage a ‘friend in the deal’ – an outside partner – to provide guidance throughout the M&A process; half of all buyers and 40% of sellers are considering partnering with a commercial bank.
In late 2013, RBS Citizens conducted a survey of 460 U.S.-based middle market business executives that are open to or currently engaged in some form of corporate development activity, including mergers, acquisitions, and raising capital in the New England, Mid-Atlantic and Mid-West regions. For the purposes of this survey, middle market businesses have annual revenues of between $5 million and $2 billion.
The RBS Citizens Middle Market M&A Outlook, now in its third year, provides an in-depth look into the behaviors, attitudes and perceptions of executives about their corporate development strategies for the year ahead.
The Sellers’ Perspective:
Based on this year’s survey results, the proportion of current and potential sellers in the market remains unchanged since 2012, but their motivations and intentions have shifted.
- Although just 6% of middle market executives are currently involved in a sale, more than one-third indicate they would be open to a deal if approached by a buyer with a strategic fit.
- While sellers were willing to ‘sell it all’ a year ago, a partial sale – selling an operating asset or division – has become more appealing than selling off the entire organization.
- Being undervalued and underpaid by acquiring firms remains sellers’ primary concern; partial sellers are increasingly concerned about meeting post-acquisition revenue targets.
The Buyers’ Perspective:
While fewer acquisitions were in process at the end of 2013 than in the year before, deals this year are expected to be larger and more strategic.
- Less urgency in the market has translated into fewer current deals in process in early 2014 and more potential buyers are ‘on the sidelines’: open to but not actively seeking buying opportunities.
- Buyers are less reliant on M&A as a means of growing; their goals are now more likely to be expanding geographic reach, increasing production and product capabilities and accelerating organic growth.
- Respondents plan to make fewer purchases in 2014 but expect to spend more on each; the majority of executives anticipate spending between $10 million and $25 million.
The Trusted Advisor:
Given the complexity of an M&A transaction, from ensuring proper valuation to identifying the best strategic buyers or acquisition targets, the process has become more labor-intensive. Most companies without an experienced internal team are relying on an outside advisor.
- Of organizations who intend to engage external support for their deal-related corporate development needs, commercial banks are the most popular choice, followed by investment banks and business brokers.
- Nearly half (47%) of respondents rate commercial banks as ‘excellent’ in regards to their corporate development capabilities, compared to 35% for investment banks and 26% for both private equity and venture capital firms.
- Valuation, financing, opportunity assessment and due diligence are the areas where these companies are looking for the most help.
For a copy of this year’s study, please visit citizensbank.com.
About RBS Citizens Financial Group, Inc.
RBS Citizens Financial Group, Inc. is a $120 billion commercial bank holding company. It is headquartered in Providence, R.I., and through its subsidiaries has approximately 1,400 branches, over 3,500 ATMs and more than 18,000 colleagues. It operates a branch network in 12 states and has non-branch retail and commercial offices in more than 30 states. Its two bank subsidiaries are RBS Citizens, N.A., and Citizens Bank of Pennsylvania. They operate a 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. RBSCFG is owned by RBS (the Royal Bank of Scotland Group plc). RBSCFG’s website is citizensbank.com.