Now That the Election Dust Has Settled, What’s In Store For The Middle Market?

Posted on: January 25th, 2017

The explosive 2016 presidential election had cast a cloud of uncertainty in the business environment- especially the sensitive middle market sector. Now that the election dust has settled, the middle market is breathing easy as all the uncertainty is behind them.

Here’s an insight of what might be in store for middle-market companies in the New Year ahead.

It looks like bright days are ahead

According to data released by the National Center for the Middle Market, the rate of revenue growth for middle-market businesses stood at 6.3 percent at the end of the third quarter of 2016. While this is in line with the long-term average revenue growth rate for middle-market firms, the Center’s expectations for future revenue growth are bright.

This could be due to the expectations of a strong employment growth of 4.9 percent, which is near to the all-time reported high for middle-market firms.

Middle markets will remain bullish in 2017

The annual CIT Voice of the Middle Market survey of senior financial decision makers in companies posting revenues between 25 million and 1 billion dollars, has predicted that American small and middle market businesses will be bullish in 2017.

Predictions determine that most business leaders will actively pursue one or more growth strategies in the coming year. Growth strategies will include geographic expansion, extending of product lines, adding new markets and new but related businesses to their portfolios.

Regarding mergers and acquisitions, whose activity remained low through 2016, predictions are that they will increase in 2017. In addition, acquisitions will mostly be as investments, as part of an organic strategy.

The experts also forecast that the technology sector will remain robust. This will be because businesses will continue to drive efficiencies through greater reliance on technology.

Furthermore, the healthcare and healthcare IT sectors, will continue to be strong in 2017, even though there are continued questions about changes in government policy.

The expanding capital source in the middle market- private equity fund managers- will continue to fuel the sector growth in 2017. With the price per barrel stabilizing, private equity is expected to look for select opportunities in energy and energy-related services.

Other industries that will see PE investment will include healthcare and technology.

The great unknown can change things

With 2017 being a post election year, the change in federal policies will affect American businesses. However, how they will affect the middle market scenario is yet unknown.

Business leaders of the middle market should be ready to react to what could be dramatic changes in tax regulation or government spending. On a global front, they should be ready to protect their company from cyber threats involving data security and terrorism related events.

A cautious but growth oriented approach is advised for the middle markets.

In the acquisition financing arena, capital availability is destiny as companies require reliable access to capital to grow over the long term. Unforeseen capital needs usually arise when acquirers least expect it. This can cause some concern for the acquisition financing provider, especially when covenants tighten up and that working capital availability is utilized faster than expected.

Mezzanine debt borrowing is usually a straightforward activity that many companies use for funding of transitional growth. Mezzanine debt lenders are highly transparent about their due diligence approach and their post-closing loan management making it easy for companies to engage with.

Elections have consequences and positive ones at that for the acquisition financing middle market. While much media attention is paid to the direction of the yield curve and the Fed’s likely rate cuts, scant attention is paid to the more important drivers of the acquisition financing market – business psychology and regulatory climate.