Daily News: June 28, 2013

Organic Growth, Not M&A, Driving Middle Market Expansion

In a recent report based on a middle market survey, KeyBank says contrary to predictions for 2013, this is not the year that middle market companies will set new records for mergers and acquisitions. But that doesn’t mean the middle market is standing still.

While nearly half of the middle market leaders polled said they have not been merger-minded so far in 2013, 57% of companies indicated they will expand their businesses within the next six months, usually by adding employees, buying equipment or adding new facilities.

Cindy Crotty, head of KeyBank’s commercial banking segment, said it appears the middle market wants to hedge its bets given ongoing uncertainty about significant issues such as the US debt crisis and companies’ final tab for compliance with the Affordable Health Care Act.
“Until they have more clear information about these big issues, middle market companies just are not willing to take the risk of investing in and integrating acquisitions,” Crotty said. According to the survey, 49% of middle market business leaders polled had no interest in making an acquisition, and only 24% of those polled completed an acquisition. An additional 27% indicated they considered but did not complete an acquisition.

Significantly, middle market leaders remain risk-averse despite their growing confidence in the economic outlook nationally, locally and for their businesses. More than half characterized the US economic outlook to be good to excellent for the remainder of 2013 and early 2014.

Crotty said companies that passed on M&A opportunities so far still might take the plunge: “There are a lot of factors that make this the right time to buy, including taking advantage of interest rates that are still low – at least for now,” she said.

The full report is available at www.key.com/MMinsights