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ParenteBeard Quick Poll: M&A Pros Optimistic on Middle Market Outlook

November 2, 2012

Healthcare, Technology and Oil and Gas Industries Expected to be Most Active

As we approach year-end, dealmakers are shifting their focus away from a lackluster 2012 for the mergers and acquisitions (M&A) industry and regaining an improved viewpoint as they look towards 2013. A poll of top-level dealmakers within the M&A industry released today by ParenteBeard, a top 25 U.S. accounting firm, revealed that a majority of respondents (59 percent) believe that there will be an increase in overall activity for middle market companies during the next 12 months. When asked which industries the dealmakers expected to be most active in M&A over that same time period, healthcare, technology and oil and gas were the top three, respectively. The results suggest M&A professionals have an overall optimistic outlook for middle market activity in the coming year compared to its current status. The survey of 66 respondents was conducted in conjunction with the tenth annual M&A East 2012 conference held this past month, the premier conference for private equity firms attended by financial and strategic dealmakers from across the United States.

“The year 2012 was less than what we’d hoped for in terms of M&A activity,” said Jeff Vrabel, partner of ParenteBeard’s auditing and accounting services group and the firm’s practice leader for manufacturing, distribution and technology. “However, it’s reasonable to see that dealmakers are optimistic on healthcare, technology and oil and gas. Given the effect reform has had on convergence, healthcare is an obvious area to look to for increasing activity. The technology industry always garners interest from private equity, so it makes sense that there would be expectations that many of the well-capitalized players would look to expand by buying key businesses. The oil and gas industry was one of the few sectors to actually see some increase in deal value this year, so it’s reasonable to consider that could continue into the next year.”

The survey also revealed insights on what industry professionals believe are the biggest current impediments to M&A activity. Slow economic growth (38 percent) was the most common response, followed closely by a lack of confidence (35 percent). The upcoming presidential election was cited by slightly more than a fifth (21 percent) of respondents as a barrier to the current M&A landscape. In light of all of the attention given to the looming debt crisis in Europe, a potentially surprising result was only three percent of respondents believe the European sovereign debt crisis is the biggest current impediment to M&A activity.

The  survey results also shed some light on possible reasons for the fall in M&A activity for the current year. More than half of the M&A professionals polled said they believe the single biggest reason that business owners are currently deferring the sale of their businesses is that they are waiting for improved performance (52 percent). Concerns about valuation (26 percent) was the second most common reason believed to be slowing activity, while a tenth of respondents believed concerns about reinvestment of sale proceeds (11 percent) and uncertainty about the future tax environment (11 percent) were the next biggest reasons.

“There has been a variety of reasons for the fall in activity this year,” said Mario Patone, managing director of the firm’s transaction advisory services.“A tepid global economy marred by a lack of confidence in the Eurozone, our own national economic issues and slowing growth in emerging markets have all contributed to an M&A landscape impacted by uncertainty. If and when these issues start to gain some clarity, we should start to see activity crawl back up. And judging by the survey results, many dealmakers are expecting to see a more certain environment in the upcoming year.”

The survey also revealed that a majority of respondents indicated that they expect little change in valuation multiples or interest rates over the next 12 months. Nearly three of four polled believe valuation multiples for middle market companies (74 percent) and interest rates (73 percent) will remain the same.

ParenteBeard was a platinum level sponsor for the tenth annual M&A East 2012 conference held this month in Philadelphia. Survey respondents were registered attendees of the two-day conference, including top-level dealmakers coming from  backgrounds in private equity, valuations, investment banking, lending and other advisory services.

About ParenteBeard
ParenteBeard is ranked among the top 25 accounting firms in the U.S. A leader in providing CPA and business advisory services to small businesses, middle market companies, nonprofits and SEC registrants, ParenteBeard has 1,100 professionals located throughout the Mid Atlantic region. As an independent member of Baker Tilly International, ParenteBeard is proud to provide the highest level of service to clients nationally and internationally.