On February 2, 2017, Nixon Peabody LLP hosted a Hot Topics in the Middle Market event entitled “2017 Private Equity and M&A Outlook – Trends & Opportunities” at the Casa Del Mar Hotel in Santa Monica. Los Angeles partners Marc Kenny and Matt Grazier (Private Equity & Investment Funds) moderated a lively discussion featuring the following speakers:
·Nino Cordoves, MidCap Financial Services, LLC
·Paul Kacik, Opus Financial Partners
·Vince Lawler, Bernstein Global Wealth Management
·Bill Lemos, Aon Risk Services
·Brad Meadow, SPK Capital, Pardis Nasseri
·Palm Tree Advisors, Craig Wickwire RSM US LLP
·Matt Young, CriticalPoint Partners.
Here are some of the key takeaways from the discussion:
·Deal Environment. In general, 2016 remained a “sellers’ market” with various buyers competing for fewer quality assets and such buyers paying top dollar in the process. Panelists noted that the number of funds competing in the lower middle market have increased over the past few years leading to an increase of potential buyers competing for the same assets. The panel agreed that strategic buyers continue to perform well in this competitive market and were often willing to pay higher multiples relative to private equity buyers.
·Valuations. The general consensus amongst the panelists was that throughout 2016 valuations remained high and that high valuations were likely to continue into 2017. Some panelists, however, thought there was some softening in selective areas, such as retail, especially for retail companies without a robust online presence.
·Trump Administration. The election of President Trump will undoubtedly bring a number of changes. The panelists generally agreed that potential tax changes could have a significant effect on when owners decide to sell. However, the panelists but were uncertain on how the election of President Trump will affect deal flow with so many factors at play. The consensus feeling was that of uncertainty regarding tax changes, trade policy and tariffs and the effect on supply chains, so investors need to get comfortable with being uncomfortable.
·2017 Forecast. The panelist generally agreed that the M&A environment will continue to remain strong in 2017 and that corporate strategics will remain active on the buy-side. There was some disagreement amongst the panelists as to whether funds that specialize in certain industries would have an advantage in securing quality deals over generalist funds in 2017. A couple of panelist also noted that fundless sponsors are gaining traction and continue to be players in the market. Some panelist are bullish on certain verticals for 2017, such as aerospace, defense and healthcare management.