M&A Outlook: Still a Sellers’ Market, But Urgency Recedes as Growth Continues

Business leaders surveyed by Citizens Commercial Banking are feeling less urgency to engage in mergers and acquisitions, but sellers with standout businesses can still expect a relatively strong year.

Survey respondents see companies relying more on organic growth, fewer sellers in the queue and continued discipline among buyers in 2020. Expect lower deal volumes, more strategic carve-outs and bolt-ons, and stable-to-higher valuations, according to the survey of nearly 600 executives.

“The prevailing sense is that the backdrop is favorable, but the urgency to get deals done has ticked downward,” said Ralph M. Della Ratta, who is based in Cleveland and co-leads M&A advisory at Citizens Capital Markets with Atlanta-based Jim Childs. “In this environment, mid-market leaders are approaching M&A with measure and restraint. The financing backdrop definitely facilitated the M&A market through 2019, and we see more of the same for the year ahead, especially with historically low interest rates.”

“We believe the survey data suggests continued strength in the M&A market,” added Childs. “However, the need for buyer discipline in terms of valuations and deal terms remains as high as ever, which could prevent 2020 statistics from eclipsing prior years’ peaks.”

There was a significant drop in the pool of likely sellers heading into 2020, down 16 percent from a year ago, as just 44 percent of mid-market companies appear to be engaged in or open to a sale – the lowest reading since 2017. Only about 55 percent of mid-market leaders consider themselves active buyers – 16 percent fewer than a year ago.

Other key findings of Citizens Commercial Banking’s ninth annual Middle Market M&A Outlook include:

  • Mid-market leaders are expecting 2020 to be more of a sellers’ market, with 41 percent seeing the scales tipping in favor of sellers, up from 35 percent in the 2019 outlook.
  • Buyers do not expect capital markets to be a roadblock to their aspirations. More than half say that the financing environment will help their acquisition strategy, while another quarter say it will have a neutral impact.
  • Forty-three percent of mid-market leaders expect to hire at the same level as previous years, while a third of respondents said they expect to hire more employees than in the past few years.
  • Only 27 percent of sellers expressed interest in selling their entire business, significantly down from 47 percent the prior year. Likewise, buyers have less interest in transformative acquisitions. Thirty-two percent of mid-market leaders indicated interest in a transformative acquisition for 2020, compared to 35 percent the prior year.
  • Only 10 percent of respondents anticipate valuations decreasing in the year ahead, while nearly half expect valuations to climb. Expectations for higher valuations appear strongest in the technology, media and telecomm sector, with 66 percent of respondents anticipating higher multiples. The industrial and consumer services sectors are more bullish than the year before, while sentiments in the business services sector have cooled. Expectations for the health care sector are in line with the prior year.
  • Compared to last year’s survey, more companies report a decrease in solicitations from prospective buyers.
  • The majority of both buyers and sellers indicate they are likely to hire an advisor if they engage in M&A activity in the year ahead. Sixty percent of this year’s respondents have worked with an M&A advisor in the past and the overwhelming majority reported being satisfied with the experience.

The Middle Market M&A Outlook was fielded in November and December 2019 to C-suite executives at U.S. companies with annual revenue from $50 million to $3 billion. For more information on this year’s M&A Outlook, please go to Middle Market M&A Outlook 2020.

Citizens is a trusted strategic and financial adviser, consistently delivering clear and objective advice. The Citizens Commercial Banking approach puts clients first by offering great ideas combined with thorough market knowledge and excellent execution to help our clients enhance their business and reach their potential.

For more information, please visit the Citizens Commercial Banking website.

About Citizens Financial Group, Inc.
Citizens Financial Group, Inc. is one of the nation’s oldest and largest financial institutions, with $165.7 billion in assets as of December 31, 2019. Headquartered in Providence, Rhode Island, Citizens offers a broad range of retail and commercial banking products and services to individuals, small businesses, middle-market companies, large corporations and institutions. Citizens helps its customers reach their potential by listening to them and by understanding their needs in order to offer tailored advice, ideas and solutions. In Consumer Banking, Citizens provides an integrated experience that includes mobile and online banking, a 24/7 customer contact center and the convenience of approximately 2,700 ATMs and approximately 1,100 branches in 11 states in the New England, Mid-Atlantic and Midwest regions. Consumer Banking products and services include a full range of banking, lending, savings, wealth management and small business offerings. In Commercial Banking, Citizens offers corporate, institutional and not-for-profit clients a full range of wholesale banking products and services, including lending and deposits, capital markets, treasury services, foreign exchange and interest rate products, and asset finance. More information is available at www.citizensbank.com or visit us on Twitter, LinkedIn or Facebook.

This is for informational purposes only, and is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This material contains forward looking statements and there can be no guarantee that they will come to pass. Information contained herein is based on data from multiple sources and Citizens makes no representation as to the accuracy or completeness of data from sources outside of Citizens.

©2020 Citizens Financial Group, Inc. All rights reserved. Banking products and services are offered by Citizens Bank, N.A., Member FDIC. Securities products and services are offered through Citizens Capital Markets, Inc., Member FINRA and SIPC. Citizens Bank and Citizens Commercial Banking are brand names of Citizens Bank, N.A. Western Reserve and Citizens Capital Markets are brand names of Citizens Financial Group, Inc.

Contacts:

Frank Quaratiello
frank.quaratiello@citizensbank.com
617.725.5851

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