InSight

Exit and Growth Strategies for Middle Market Businesses

Mergers & Acquisitions Outlook for 2013

By Kim Levin | Mar 05, 2013

February Issue Middle Market Pulse 

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As we put 2012 behind us, we look to see what greets us on the M&A horizon for 2013.  Conditions are paradoxically both ripe for improvement and uncertain enough to hint at challenges in the coming year.

On a global scale, deal flow contracted for the second consecutive year in 2012.  Investors were skittish due to economic and political uncertainties.  Although some of the issues concerning politics and taxation were somewhat put to bed as we entered the new year, as we step into month two we note a quiet time.  Is this the calm before the storm, and by storm we mean a flurry of activity?

Strategic investors will be an important part of the M&A landscape in 2013.  With corporate balance sheets cash rich and organic growth opportunities fewer and farther between, corporations will be looking to make growth acquisitions to further their long term financial goals.  Financing those acquisitions will not be problematic, as banks have funds to lend and debt is relatively inexpensive.  The challenge for strategic investors will be to uncover those opportunities that combine best in class performance with optimum growth potential.  Not all companies for sale are diamonds, much less diamonds in the rough.

Private equity investors will be under increasing pressure to put their cash to work in 2013.  By design, most private equity investors must invest “old” money before they raise “new” funds.  The past several years have proved to be a challenging environment within which to invest and many private equity funds have been sidelined waiting for conditions to improve.  That year may be this one.  Slow improvements in the economy over the past two years have translated into healthier balance sheets for many companies.   Private equity firms seek out investments that are both risk averse and poised for substantial growth.  They answer to their investors and it’s all about ROI.

The sticking point for both strategic and financial investors in 2013 will be realistic valuations.   The ability to bridge the gap between what a seller seeks and what a buyer is willing to pay will unlock the key to a successful year in M&A.

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