By Martin Okner, Chairman of ACG New York, Special for USDR
The middle market produces more new, sustainable jobs than large or small businesses, and its health is vital to American families, communities and the overall US economy.
ACG New York, the largest association of middle market deal making and corporate professionals in New York, conducted its Annual Middle Market Survey and found the majority of respondents believe that middle market transaction activity will increase in 2015 at high valuations. The survey is based on responses from more than 200 ACG New York members who are leading dealmakers in the middle market, representing several billions of dollars flowing to one third of the US economy, the middle market.
Middle market businesses employ more than 44 million people in the U.S. and represent nearly a third of U.S. GDP. They are the bread and butter of the United States’ economy and private capital is their growth engine.
From 1995 through 2010, private capital-backed companies grew jobs by 64.4 percent, while all other companies in the U.S. economy grew jobs by 18.3 percent*. During the recession, 2007 through 2010 middle market companies added 2 million jobs while other companies were cutting staff. These results demonstrate confidence that private capital investments into the middle market will continue to drive sales and job growth throughout this decade in the U.S. and generate long-term returns for investors.
The survey found that the nearly two thirds (64 percent) of respondents believe there will be an increase in middle market transaction activity through the remainder of 2014 and through Q1 of 2015. Nearly three quarters of respondents (74 percent) believe that deal flow remains strong and that the uncertain tax environment is neither inhibiting transactions nor making sellers reluctant to sell their businesses.
Regarding private equity returns, the survey also found that more than half of respondents (56 percent) predict that middle-market private equity returns will outperform smallcap public equity returns over the next three to five years.
When it comes to valuations, more than half of respondents (53 percent) believe that businesses currently selling are achieving reasonable valuations, but that these valuations are not sustainable. More than 45 percent believe that high valuations are mostly a result of low debt costs to finance deals and a great deal of money chasing fewer quality deals. Additionally, 47 percent of those polled maintain that there is a disconnect between buyers and sellers when it comes to valuations, but that the gap is closing.
ACG New York members live and breathe the middle market. As we close out 2014 and look toward 2015, we thought it would prove insightful to take the pulse on what these professionals predict for the upcoming months, and we were right! Given the results of the survey, we are confident that the middle market will continue to drive strong transaction activity and support economic growth for the foreseeable future.
When polled about what industries professionals believe will achieve the highest level of deal flow in Q4 2014 and Q1 2015, 39 percent, answered technology. Following that, 37 percent believe healthcare will experience the most deal flow, and over a quarter (28 percent) thought it would be the oil & gas industry.
Marty Okner will appear on The Price of Business Radio Show on December 12, 2014 at 9:40am CT.
* Source www.growtheconomy.org