First Annual Market Expectations Survey

A look at what investors, business owners and their advisors see in the year ahead for mergers & acquisitions in the South. 

Presented here are highlights from the first annual Investment Banking South Survey, in which we ask investors, business owners and their advisors to look back to 2014 and forward to 2015 in order to give us a sense of where the merger & acquisition market in the South is today and where it is going.

Conducted in April 2015, this survey was completed by 338 investors, business owners and business advisors – such as attorneys, accountants and bankers – from Alabama, Florida, Georgia, Mississippi, North Carolina, South Carolina and Tennessee.

As we note in the first paragraph, this will be an annual survey, with the results of each year building on the previous year, so that we can identify trends and patterns over time that may shed further light on the evolution of the middle market in the South.

1. The South is HOT: Everyone surveyed – business owners, investors and business advisors like attorneys, accountants and bankers – said the Southern economy is doing quite well, and that there is a lot of money looking to be invested in Southern businesses

  • A majority (66%) of business owners in the Southeast think their business will grow in 2015 by at least 10%. The largest plurality of business owners 26%) say their gross revenue growth will be 30% or more.
  • Business advisors are bullish on the Southern econom A majority of these advisors (53%) rank their optimism about their regional economy as 8 or better on a scale of 1 to 10.
  • Commercial bank loans in the South are more accessible this year than last year. A large plurality of business owners (42%) and business advisors (49%) say this is true, with advisors being slightly more optimistic about access to commercial bank loans.
Business Owners
How much do you expect your revenue to grow or shrink in 2015 compared to 2014?
Answer Options Response Percent
Grow by 30% or more 26.1%
Grow by 20% to 30% 15.9%
Grow by 10% to 20% 23.9%
Grow by up to 10% 21.6%
Stay about the same 11.4%
Shrink by up to 10% 0.0%
Shrink by 10% to 20% 1.1%
Shrink by 20% to 30% 0.0%
Shrink by more than 30% 0.0%
Business Advisors
On a scale of 1 to 10, with one being lest confident and 10 being most confident, how optimistic do you feel about your regional economy?
Answer Options Response Percent
1 0.0%
2 0.0%
3 0.0%
4 3.2%
5 3.8%
6 11.4%
7 29.1%
8 36.7%
9 12.7%
10 3.2%
Business Owners
How accessible are commercial loans from banks in 2015 compared to 2014?
Answer Options Response Percent
Much more accessible 8.0%
More accessible 34.1%
About the same 38.6%
Less accessible 0.0%
Much less accessible 1.1%
Don’t know 18.2%
Business Advisors
In 2015 compared to 2014, how accessible to business owners in your region are commercial bank loans?
Answer Options Response Percent
Much more accessible 3.2%
More accessible 45.9%
About the same 40.1%
Less accessible 1.3%
Much less accessible 0.6%
Don’t know 8.9%

2. Manufacturing is the HOTTEST industry in a HOT region: This sector is attracting more interest from capital sources than other industries.

  • Private equity is especially interested in manufacturing businesses, with a majority (56%) of manufacturing business owners saying they are getting more calls from private equity groups this year than last year, whereas only 36% of non-manufacturing firms are seeing an increase in private equity interest. Investors agree, as they rank manufacturing as the industry they are most likely to target. (89% of investors listed “Manufacturing” as a target industry, tied with “Business Services.” Second was “Wholesale Trade” at 56% and “Transportation & Warehousing” was third at 50%)
  • Though evidence of their interest is not as strong as that of private equity firms, non-bank lenders are also more interested in manufacturing than in other industries, with 48% of manufacturing business owners saying they are getting more calls from non-bank lenders this year than last year, whereas only 36% of non-manufacturing firms are seeing an increase in calls from non-bank lenders.
Business Owners – Manufacturers
In 2015 compared to 2014, has the number of calls you have received from private equity firms offering to buy your business:
Answer Options Response Percent
Greatly increased 16.0%
Increased 40.0%
Stayed the same 36.0%
Decreased 4.0%
Greatly decreased 0.0%
Don’t know 4.0%
Business Owners – Non-Manufacturers
 In 2015 compared to 2014, has the number of calls you have received from private equity firms offering to buy your business:
Answer Options Response Percent
Greatly increased 4.5%
Increased 31.8%
Stayed the same 50.0%
Decreased 0.0%
Greatly decreased 0.0%
Don’t know 13.6%
Investors
Target industries (choose as many as apply):
Answer Options Response Percent
Manufacturing 88.9%
Business Services 88.9%
Wholesale Trade 55.6%
Transportation and Warehousing 50.0%
Finance and Insurance 50.0%
Professional Services 44.4%
Health Care 38.9%
Information 33.3%
Educational Services 27.8%
Accommodation and Food Services 16.7%
Retail Trade 11.1%
Arts, Entertainment, and Recreation 11.1%
Real Estate and Rental and Leasing 5.6%
Business Owners – Manufacturers
In 2015 compared to 2014, has the number of calls you have received from mezzanine lenders, business development corporations and other non-bank firms offering to finance your business:
Answer Options Response Percent
Greatly increased 4.0%
Increased 44.0%
Stayed the same 40.0%
Decreased 8.0%
Greatly decreased 0.0%
Don’t know 4.0%
Business Owners – Non-Manufacturers
In 2015 compared to 2014, has the number of calls you have received from mezzanine lenders, business development corporations and other non-bank firms offering to finance your business:
Answer Options Response Percent
Greatly increased 2.3%
Increased 34.1%
Stayed the same 45.5%
Decreased 4.5%
Greatly decreased 0.0%
Don’t know 13.6%

3. Lots of money chasing a few deals: Investors from throughout the country say there is low M&A deal flow in the South and there is much competition for what deals there are, which tend to be of the same quality found in any region of the nation.

  • A majority (71%) of investors believe that the quality of deal flow in the South is roughly the same as in the rest of the country.
    • However, a near majority of investors (47%) also believe that the quantity of deals in the South is lower than the rest of the country – and a majority (53%) believe that competition for this smaller number of deals has increased this year.
    • Investors’ observations that there are few M&A deals available in the South are reinforced by business owners, as a significant majority (66%) say it is unlikely they will sell their business in 2015.
    • Though there is a lot of debt financing available in the South, a majority (51%) of business owners say they are unlikely to borrow money this year.
    • Manufacturers are the least likely to borrow money this year: only 8% of them said it’s likely they’ll do so, whereas 27% of non-manufacturing companies said it is likely they will.
Investors
In your opinion, how does the quality of deal flow from the Southeast compare to other regions?
Answer Options Response Percent
Much Higher 0.0%
Higher 17.6%
Equal 70.6%
Lower 11.8%
Much Lower 0.0%
Investors
In your opinion, how does the quantity of deal flow from the Southeast compare to other regions?
Answer Options Response Percent
Much Higher 0.0%
Higher 23.5%
Equal 29.4%
Lower 47.1%
Much Lower 0.0%
Investors
Compared to last year, do you believe the competition for deals in the Southeast has:
Answer Options Response Percent
Increased Substantially 0.0%
Increased 52.9%
Stayed the same 47.1%
Decreased 0.0%
Decreased Substantially 0.0%
Business Owners
How likely are you to sell your company in the next year?
Answer Options Response Percent
Very likely 5.7%
Likely 8.0%
Neutral 19.3%
Unlikely 20.5%
Very unlikely 45.5%
Unsure 1.1%
Business Owners
How likely is your business to borrow money or refinance your current loan with a new lender in the next year?
Answer Options Response Percent
Very likely 10.2%
Likely 11.4%
Neutral 23.9%
Unlikely 27.3%
Very unlikely 23.9%
Unsure 3.4%
Business Owners – Manufacturers
How likely is your business to borrow money or refinance your current loan with a new lender in the next year?
Answer Options Response Percent
Very likely 4.0%
Likely 4.0%
Neutral 24.0%
Unlikely 28.0%
Very unlikely 40.0%
Unsure 0.0%

4. We don’t know how good we have it: Investors from the Northeast and Midwest see more opportunities for investing in high quality Southern businesses than do investors based in the South.

  • 45% of investors based in the Southeast believe that the quantity of deal flow in the South is lower than in other parts of the country, whereas only 29% of Northeast investors and 36% of Midwest investors share this belief.
  • More Southeast investors (17%) than investors in the Northeast (0%) or Midwest (14%) believe that the quality of deals is lower in the Southeast than in other regions.
  • 68% of investors based in the Southeast believe that competition for deals in the South has increased, a belief shared by 57% of Northeast investors and only 38% of Midwest investors.
Investors – Southeast
In your opinion, how does the quantity of deal flow from the Southeast compare to other regions?
Answer Options Response Percent
Much Higher 0.0%
Higher 20.8%
Equal 34.0%
Lower 43.4%
Much Lower 1.9%
Investors – Northeast
In your opinion, how does the quantity of deal flow from the Southeast compare to other regions?
Answer Options Response Percent
Much Higher 0.0%
Higher 28.6%
Equal 42.9%
Lower 28.6%
Much Lower 0.0%
Investors – Midwest
In your opinion, how does the quantity of deal flow from the Southeast compare to other regions?
Answer Options Response Percent
Much Higher 0.0%
Higher 21.4%
Equal 42.9%
Lower 35.7%
Much Lower 0.0%
Investors – Southeast
In your opinion, how does the quality of deal flow from the Southeast compare to other regions?
Answer Options Response Percent
Much Higher 0.0%
Higher 13.2%
Equal 69.8%
Lower 17.0%
Much Lower 0.0%
Investors – Northeast
In your opinion, how does the quality of deal flow from the Southeast compare to other regions?
Answer Options Response Percent
Much Higher 0.0%
Higher 14.3%
Equal 85.7%
Lower 0.0%
Much Lower 0.0%
Investors – Midwest
In your opinion, how does the quality of deal flow from the Southeast compare to other regions?
Answer Options Response Percent
Much Higher 0.0%
Higher 14.3%
Equal 71.4%
Lower 14.3%
Much Lower 0.0%
Investors – Southeast
Compared to last year, do you believe the competition for deals in the Southeast has:
Answer Options Response Percent
Increased Substantially 11.3%
Increased 56.6%
Stayed the same 28.3%
Decreased 3.8%
Decreased Substantially 0.0%
Investors – Northeast
Compared to last year, do you believe the competition for deals in the Southeast has:
Answer Options Response Percent
Increased Substantially 7.1%
Increased 50.0%
Stayed the same 42.9%
Decreased 0.0%
Decreased Substantially 0.0%
Investors – Midwest
Compared to last year, do you believe the competition for deals in the Southeast has:
Answer Options Response Percent
Increased Substantially 0.0%
Increased 38.5%
Stayed the same 61.5%
Decreased 0.0%
Decreased Substantially 0.0%

5. Business advisors and business owners see the Southern M&A market differently: By and large, business advisors are more optimistic about Southern businesses selling or being recapitalized this year than are the owners of those businesses.

  • Business advisors believe that business owners are getting more offers to buy their companies than the owners say they are getting. A near majority (47%), of business advisors think offers to buy businesses has increased this year, but only 39% of business owners agree with this assessment. Most business owners (44%) say interest in buying their business is about the same it was last year.
  • A near majority (47%) of business advisors believe that business owners’ desire to sell their business is higher in 2015 than it was in 2014. However, only 14% of business owners say they are likely to sell this year. Rather, most businesses owners (39%) are interested in buying or merging with another company.
  • A majority (58%)of business advisors believe that business owners are getting more calls this year from non-bank lenders – like mezzanine lenders and business development corporations – whereas only 38% of business owners say these kind of offers to lend money have increased this year, and a near majority (48%) of business owners say the number of offers to borrow money from non-bank firms is about the same this year as last year.
Business Advisors
In 2015 compared to 2014, do you believe the number of calls your business owner clients have received from private equity firms offering to buy their business has:
Answer Options Response Percent
Greatly increased 2.5%
Increased 43.9%
Stayed the same 35.0%
Decreased 3.8%
Greatly decreased 0.6%
Don’t know 14.0%
Business Owners
In 2015 compared to 2014, has the number of calls you have received from private equity firms offering to buy your business:
Answer Options Response Percent
Greatly increased 8.0%
Increased 30.7%
Stayed the same 44.3%
Decreased 3.4%
Greatly decreased 0.0%
Don’t know 13.6%
Business Advisors
In 2015 compared to 2014, do you perceive regional business owners’ appetite to sell their company to be:
Answer Options Response Percent
Much higher 1.9%
Higher 45.2%
About the same 50.3%
Lower 2.5%
Much lower 0.0%
Business Owners
How likely are you to sell your company in the next year?
Answer Options Response Percent
Very likely 5.7%
Likely 8.0%
Neutral 19.3%
Unlikely 20.5%
Very unlikely 45.5%
Unsure 1.1%
Business Advisors
In 2015 compared to 2014, do you believe the number of calls that your business owner clients have received from mezzanine lenders, business development corporations and other non-bank firms offering to finance their business has:
Answer Options Response Percent
Greatly increased 7.6%
Increased 50.6%
Stayed the same 23.4%
Decreased 3.8%
Greatly decreased 0.0%
Don’t know 14.6%
Business Owners
In 2015 compared to 2014, has the number of calls you have received from mezzanine lenders, business development corporations and other non-bank firms offering to finance your business:
Answer Options Response Percent
Greatly increased 3.4%
Increased 34.1%
Stayed the same 47.7%
Decreased 5.7%
Greatly decreased 0.0%
Don’t know 9.1%

6. It’s relatively easy to find and buy a smaller middle market company in the South, but it’s harder to find one worth buying: Investors who focus on smaller middle market companies ($1 million to $10 million in sales) based in the South are most optimistic about the quantity of deal flow and see the least amount of competition for deals. However, they are also most pessimistic about the quality of deal flow, which may explain why there are more deals and less competition in this revenue segment.

  • The most optimistic about the quantity of deal flow are those investors who target smaller middle market companies with $1 – $10 million in sales: only 27% think deal quantity is lower than in other parts of the country and 30% think it is higher. Investors who target larger middle market companies with $100+ million in sales are most pessimistic about the quantity of deal flow in the South: 47% think it is lower than in other parts of the country and only 24% think it is higher.
  • Investors who target middle market companies with $50-$100 million in sales are the most optimistic about the quality of deal flow in the South – 23% think deals are of higher quality than in other parts of the country. The most pessimistic about deal quality are investors in smaller middle market companies with $1-$10 million in sales – where only 13% think deals are of higher quality and 17% think they are of lower quality than in other parts of the country.
  • Investors in middle market companies with $25-$50 million in sales see the most competition for deals in the South, with 64% saying competition has increased this year. Those seeing the least competition are investors in companies with $1-$10 in sales, with 51% saying competition has increased – and the only investors who say they have seen any decrease in competition. But, even so, only 2% of these investors report a decrease in competition. All investors see increased competition this year; it’s just that investors in small companies have seen the smallest increase.
Investors – $1 – $10 million companies
In your opinion, how does the quantity of deal flow from the Southeast compare to other regions?
Answer Options Response Percent
Much Higher 0.0%
Higher 30.0%
Equal 43.3%
Lower 26.7%
Much Lower 0.0%
Investors – $100+ million companies
In your opinion, how does the quantity of deal flow from the Southeast compare to other regions?
Answer Options Response Percent
Much Higher 0.0%
Higher 23.5%
Equal 29.4%
Lower 47.1%
Much Lower 0.0%
Investors – $50 – $100 million companies
In your opinion, how does the quality of deal flow from the Southeast compare to other regions?
Answer Options Response Percent
Much Higher 0.0%
Higher 23.3%
Equal 65.1%
Lower 11.6%
Much Lower 0.0%
Investors – $1 – $10 million companies
In your opinion, how does the quality of deal flow from the Southeast compare to other regions?
Answer Options Response Percent
Much Higher 0.0%
Higher 13.3%
Equal 70.0%
Lower 16.7%
Much Lower 0.0%
Investors – $25 – $50 million companies
Compared to last year, do you believe the competition for deals in the Southeast has:
Answer Options Response Percent
Increased Substantially 9.1%
Increased 54.5%
Stayed the same 36.4%
Decreased 0.0%
Decreased Substantially 0.0%
Investors – $1 – $10 million companies
Compared to last year, do you believe the competition for deals in the Southeast has:
Answer Options Response Percent
Increased Substantially 10.3%
Increased 41.4%
Stayed the same 41.4%
Decreased 6.9%

7. Larger middle market companies in the South are in the driver’s seat: They are attracting the most interest from non-bank firms offering financing, are more likely to buy/merge with another company, least likely to sell and least likely to take on debt.

  • More companies with $100+ million in sales (54%) are seeing a increase in calls from non-bank firms offering financing than are $1 – $10 million companies (31%) or $10 – $25 million companies (29%).
  • Large, $100+ million companies are less likely (13%) to take on debt this year than small, $1 – $10 million companies (22%) or mid-size, $10 -$25 million companies (24%)
  • Large, $100+ million companies are less likely (7%) to sell the business this year than small, $1 – $10 million companies (15%) or mid-size $10 -$25 million companies (12%). In fact, 80% of $100+ million companies said it is “very unlikely” they will sell this year.
  • Large, $100+ million companies (50%) and are more likely to acquire or merge with another company this year than small, $1 – $10 million companies (16%) or mid-size $10 -$25 million companies (41%).
  • However, more $1 – $10 million companies (34%) are seeing a increase in calls from private equity firms than are $100+ million firms (23%) or $10 -$25 million firms (18%).
  • And more $10 – $25 million companies (65%) say commercial loans are more available this year than $1 – $10 million companies (38%) or $100+ million companies (53%).
Business Owners – $100+ million
In 2015 compared to 2014, has the number of calls you have received from mezzanine lenders, business development corporations and other non-bank firms offering to finance your business:
Answer Options Response Percent
Greatly increased 6.7%
Increased 46.7%
Stayed the same 26.7%
Decreased 13.3%
Greatly decreased 0.0%
Don’t know 6.7%
Business Owners – $10 – $25 million
In 2015 compared to 2014, has the number of calls you have received from mezzanine lenders, business development corporations and other non-bank firms offering to finance your business:
Answer Options Response Percent
Greatly increased 0.0%
Increased 29.4%
Stayed the same 58.8%
Decreased 0.0%
Greatly decreased 0.0%
Business Owners – $1 – $10 million
In 2015 compared to 2014, has the number of calls you have received from mezzanine lenders, business development corporations and other non-bank firms offering to finance your business:
Answer Options Response Percent
Greatly increased 6.3%
Increased 25.0%
Stayed the same 56.3%
Decreased 6.3%
Greatly decreased 0.0%
Don’t know 6.3%
Business Owners – $100+ million
How likely is your business to borrow money or refinance your current loan with a new lender in the next year?
Answer Options Response Percent
Very likely 13.3%
Likely 0.0%
Neutral 40.0%
Unlikely 6.7%
Very unlikely 40.0%
Unsure 0.0%
Business Owners – $10 – $25 million
How likely is your business to borrow money or refinance your current loan with a new lender in the next year?
Answer Options Response Percent
Very likely 11.8%
Likely 11.8%
Neutral 35.3%
Unlikely 29.4%
Very unlikely 11.8%
Unsure 0.0%
Business Owners – $1 – $10 million
How likely is your business to borrow money or refinance your current loan with a new lender in the next year?
Answer Options Response Percent
Very likely 6.3%
Likely 15.6%
Neutral 21.9%
Unlikely 34.4%
Very unlikely 18.8%
Unsure 3.1%
Business Owners – $100+ million
How likely are you to sell your company in the next year?
Answer Options Response Percent
Very likely 0.0%
Likely 6.7%
Neutral 6.7%
Unlikely 6.7%
Very unlikely 80.0%
Unsure 0.0%
Business Owners – $10 – $25 million
How likely are you to sell your company in the next year?
Answer Options Response Percent
Very likely 0.0%
Likely 11.8%
Neutral 17.6%
Unlikely 11.8%
Very unlikely 58.8%
Unsure 0.0%
Business Owners – $1- $10 million
How likely are you to sell your company in the next year?
Answer Options Response Percent
Very likely 9.4%
Likely 6.3%
Neutral 25.0%
Unlikely 25.0%
Very unlikely 34.4%
Unsure 0.0%
Business Owners – $100+ million
How likely are you to acquire or merge with another company in the next year?
Answer Options Response Percent
Very likely 35.7%
Likely 14.3%
Neutral 21.4%
Unlikely 14.3%
Very unlikely 14.3%
Unsure 0.0%
Business Owners – $10 – $25 million
How likely are you to acquire or merge with another company in the next year?
Answer Options Response Percent
Very likely 11.8%
Likely 29.4%
Neutral 23.5%
Unlikely 11.8%
Very unlikely 17.6%
Business Owners – $1 – $10 million
How likely are you to acquire or merge with another company in the next year?
Answer Options Response Percent
Very likely 0.0%
Likely 15.6%
Neutral 34.4%
Unlikely 21.9%
Very unlikely 25.0%
Business Owners – 100+ million
In 2015 compared to 2014, has the number of calls you have received from private equity firms offering to buy your business:
Answer Options Response Percent
Greatly increased 13.3%
Increased 20.0%
Stayed the same 40.0%
Decreased 6.7%
Greatly decreased 0.0%
Don’t know 20.0%
Business Owners – $10 – $25 million
In 2015 compared to 2014, has the number of calls you have received from private equity firms offering to buy your business:
Answer Options Response Percent
Greatly increased 0.0%
Increased 17.6%
Stayed the same 70.6%
Decreased 0.0%
Greatly decreased 0.0%
Don’t know 11.8%
Business Owners – $1 – $10 million
In 2015 compared to 2014, has the number of calls you have received from private equity firms offering to buy your business:
Answer Options Response Percent
Greatly increased 6.3%
Increased 28.1%
Stayed the same 46.9%
Decreased 3.1%
Greatly decreased 0.0%
Don’t know 15.6%
Business Owners – $100+ million
How accessible are commercial loans from banks in 2015 compared to 2014?
Answer Options Response Percent
Much more accessible 13.3%
More accessible 40.0%
About the same 46.7%
Less accessible 0.0%
Much less accessible 0.0%
Don’t know 0.0%
Business Owners – $10 – $25 million
How accessible are commercial loans from banks in 2015 compared to 2014?
Answer Options Response Percent
Much more accessible 11.8%
More accessible 52.9%
About the same 29.4%
Less accessible 0.0%
Much less accessible 0.0%
Don’t know 5.9%
Business Owners – $1 – $10 million
How accessible are commercial loans from banks in 2015 compared to 2014?
Answer Options Response Percent
Much more accessible 6.3%
More accessible 31.3%
About the same 34.4%
Less accessible 0.0%
Much less accessible 0.0%
Don’t know 28.1%

Brought to you by the team at FourBridges.

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