Organic Growth Drives Middle Market Expansion
CLEVELAND -- Contrary to some predictions, this is not the year that middle market companies 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, mostly by adding employees, buying equipment or adding new facilities, according to the most recent quarterly Middle Market Business Sentiment Survey by KeyBank Commercial Bank.
Cindy Crotty, head of KeyBank's commercial banking segment, said it appears the middle market is hedging its bets because of the continuing uncertainty about the U.S. 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," she noted.
Some 49% of middle-market business leaders polled expressed no interest in making an acquisition and only 24% had completed an acquisition. An additional 27% indicated they considered but did not complete an acquisition.
Significantly, as Crotty sees it, 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 U.S. economic outlook as good to excellent for the remainder of 2013 and into 2014.
Companies that so far have passed on merger and acquisition opportunities 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," Crotty said.
Other survey highlights:
New jobs will fuel middle-market expansion; 61% of the companies planning growth will do so by adding employees. Expansion through adding new plants or locations and making significant equipment purchases are secondary.
Middle-market companies have the cash reserves to finance expansion. Half of the middle-market leaders polled will increase cash reserves over the next six months. Of those, 39% want deep reserves on hand as they plan to invest or expand.
Access to credit increases middle-market leader confidence in their ability to finance growth. A combined 70% of those polled indicated they are either extremely confident or very confident in their ability to obtain credit.
Time hasn't eased their concerns about health-care costs. More than half polled are more concerned now than last year at this time about the expense of providing or continuing to providing their employees health care. A significant percentage -- 62% -- are very or extremely concerned about the cost. Just under half, 49%, indicated they are very or extremely concerned about the cost of continuing to offer health insurance at current levels.
KeyBank worked with Lieberman Research Worldwide on the survey.
Published by The Business Journal, Youngstown, Ohio.
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