MergerMarket Group recently published a research report that presents the expectations of 50 industry experts based in the US and Canada on North American mid-market M&A activity. The report paints a promising picture for mid-market M&A opportunities over the next year buoyed by the increasing activity of private equity firms, cross-border deal flow along with ample financing alternatives.
Expectations in North America
Over eighty percent of respondents expected the number of North American mid-market M&A deals to increase, with the telecommunications, media and technology sector expected to see the greatest proportion of deal flow. The report emphasized a particularly healthy appetite among large companies for the new and niche technological innovations that these smaller firms offer. Expectations were also high for the business services and energy sectors over the next 12 months. The stable cash flows and stronger balance sheets more commonly found in the business services sector are expected to make firms in this segment particularly appealing. For the energy sector, market conditions are expected to spur asset divestitures as companies seek to decrease their exposure to the North American market.
Investments in the mid-market segment by private equity firms are also predicted to increase, with a particular interest coming from foreign investors. The most significant inbound interest is expected to come from the Asia-Pacific region followed by Europe. Similarly, North American firms are expected to be most interested in the Asia-Pacific region for outbound M&A partnerships for the new growth opportunities offered by the region’s expanding markets. The Latin American region was the second most likely region to attract North American mid-market buyers who will continue to be attracted to high-growth prospects, low operating costs and proximity to North America.
Financing opportunities were also expected to improve over the next 12 months. Confidence in improved economic conditions is expected to persuade lenders to loosen financing terms, unlocking a healthy offering of funding options at affordable interest rates.
Finally, the establishment of business development companies (BDCs) by financial institutions is also impacting mid-market M&A. Designed to aid the growth of early stage firms, BDCs are offering capital to mid-market firms was previously inaccessible through banks and other lenders. This is mobilizing mid-market firms to complete acquisitions that were previously impossible.