Most companies in the U.S. middle market say they are optimistic about M&A in 2019. The confidence comes following a record year for private equity-backed transactions.
Sixty-eight percent of the 350 U.S. middle market companies surveyed by TD Bank say they plan to engage in M&A activity within the next six to 24 months, and 85 percent said there are no barriers to M&A activity. The survey included companies generating between $50 million and $500 million in annual revenues.
Weighing in on macro-economic issues, 71 percent of respondents said tax reform will have a positive impact on their business, while 46 percent said interest rate hikes will have a negative impact. The challenges to business operations most frequently cited include: domestic competition, interest rate increases, global competition and trade policies.
“Middle market executives are also keenly watching the tight labor market,” says TD Bank’s Chris Giamo. “Although companies now have capital for expansion and want to grow staff, they are having trouble filling both skilled and unskilled positions, due to a persistently low unemployment rate.”
M&A thrived in 2018, with the aggregate value of announced global mergers and acquisitions reaching the highest level since 2015, according to information collected by Bureau van Dijk, a Moody’s Analytics company. Deal value increased 10 percent over the previous year, although volume declined 7 percent, according to the company’s report. For transactions backed by private equity and venture capital, the volume and value of announced deals increased year over year, with total deal value representing the second-best result on record, surpassed only by 2007, according to Bureau van Dijk.
The year yielded a bumper crop for private equity buyout deals, found Preqin. The research house reported that 5,106 PE deals were announced in 2018, making it the most active year the industry has ever recorded, as measured by deal volume. The activity built from the previous record of 4,829 deals announced in 2017. The total value of these deals rose to $456 billion – close to the $460 billion seen in 2015 – based on preliminary data. Preqin expects these figures to rise by up to 5 percent, as more information becomes available. Nonetheless, 2018 remains some way off the all-time record in deal value seen in 2007, immediately prior to the global financial crisis, when 3,877 PE deals valued at $700 billion were recorded.