Antares Capital Survey Finds Middle-Market PE Players Optimistic

Mar 3 2017 | 8:38pm ET

Merger expectations for this year among middle-market private equity borrowers, sponsors and investors are positive but varied, according to new survey data from Antares Capital.

The findings were contained in Antares’ annual Compass survey, which looks at market sentiment from a wide swath of middle market private equity participants. The survey is known for providing a more holistic view of activity in the space due to inputs from private equity firms, private equity-owned companies and institutional investors.

This year, the poll examined post-election sentiment related to M&A activity, hiring in the sector, and the state of the U.S. and global economies. Highlights:

U.S. Economic Sentiment Remains Strong

Despite economic and political uncertainty across the globe, middle market private equity participants see the U.S. as a bright spot. More than 75% of respondents expressed confidence in U.S. economic performance in the near-term, while prospects for reduced regulatory burdens and lower taxes were viewed as opportunities.

Outlook for the global economy was more cautious. Two-thirds of private equity sponsors who responded described themselves as pessimistic or uncertain about the global economy’s performance.  Europe was listed as a particular area of concern, due to Brexit and upcoming elections across the continent.

M&A Expectations Vary, Positive Overall

Predictions for M&A activity are favorable, although they vary among survey respondents. Nearly three-quarters of sponsor respondents anticipate the same level of activity as last year, while nearly half of institutional investors who responded anticipate an increase in M&A activity in the next 12 months.

A potentially encouraging sign for the M&A environment this year is the fact that a majority of sponsors who responded cited having more than 50% of their current fund available to invest, though inflated valuations will hamper a major uptick in M&A activity. Additionally, sponsors suggest that potential sellers could wait for increased clarity on tax reform before moving forward with a sale.

Almost three-quarters of investors expect to raise funds this year and 84% believe fundraising activity will increase from 2016, the poll revealed. A majority of investors who responded believe leveraged loan volume will increase this year, with leveraged loan default rates to remain low. In the Antares survey, investors included banks, BDCs, CLOs, insurance companies, non-bank lenders or other funds.

“Ample liquidity in credit markets, renewed optimism for U.S. growth prospects and a more favorable regulatory and tax environment will likely help lift sponsored middle-market M&A activity in 2017,” said David Brackett, managing partner and co-CEO of Antares, in a statement. “At the same time, rising optimism may also increase competition for quality assets at reasonable prices. 

In 2017, private equity firms will be challenged to be strategic in assessing the landscape and will have to continue to look for ways to differentiate themselves,” he added. “The smart money will find new ways to innovate and create value by leveraging technology and data analytics to improve operational efficiencies, and drive functional best practices across portfolio companies.”

The report also noted that investing and hiring activity are likely to remain high within industries such as Business Services, Energy, TMT and Healthcare that sponsors predict will experience the most growth over the next 12 months. Indeed, A majority of middle market companies surveyed for the publication expect to increase hiring in the next 12 months, while nearly one-third plan to increase staff by more than 5%.

This year’s survey features information collected from 226 respondents - 90 middle market companies, 63 private equity sponsors and 73 investors, the company said – polled in late December 2016.

Founded in 1992 and headquartered in Chicago, Antares Capital is a leading provider of financing solutions for middle-market, private equity-backed transactions. The company issued more than $18 billion in financing across 269 deals closed during 2016.

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