ACG New York, the largest association of middle-market, deal-making professionals in New York, today shared the outcomes of its annual End-of-Year Middle-Market Survey. When considering the key factors behind increased valuations over the past year, 77 percent of respondents identified strong access to inexpensive capital as the top cause behind this change. Sixty-four percent identified greater competition as another top factor, followed by a stronger appetite to utilize high levels of leverage.
According to the survey, a majority of respondents also identified an increasing trend of large PE firms moving into the middle market. Forty-eight percent of respondents found this change to be detrimental to middle-market firms’ ability to compete. In addition, 51 percent of respondents noticed an uptick in institutional investors bypassing traditional PE fund managers and investing directly into deals.
“As we enter into 2020, our members continue to see challenges in middle-market deal-making, including increased valuations, access to inexpensive capital, and changes to tariffs during a time of expanded economic growth under the Trump Administration. Despite these challenges, middle-market private equity continues to be a very attractive asset class for investors across the spectrum, including larger PE firms moving into the middle market,” said David Acharya, President of ACG New York and Partner at AGI Partners LLC, a middle-market-focused private equity firm.
Respondents further weighed in on the deal-making climate and the 2020 election. With respect to the deal flow quality, 51 percent of respondents found the quality of deal flow in 2019 to be the same as that of 2018, whereas 25 percent characterize 2019 as an improvement from 2018, and 22 percent view it as a downgrade from last year. Looking toward the 2020 election’s possible effect on middle-market private equity, 41 percent of respondents foresee no impact, 34 percent predict a negative or very negative impact, and 25 percent envision a positive or very positive impact.
Acharya continued, “ACG New York’s annual survey serves as a barometer for the trends that drive middle-market M&A and capital raising activity during the coming year. Our members continue to be the pulse of what will be key factors in deal-making.”
A majority of respondents noticed family offices moving into the middle market. Forty-three percent of respondents felt that this trend has not affected their ability to compete for deals, while 30 percent have found this change to be beneficial for middle-market firms, and 13 percent view it as detrimental.
As for 2020, 78 percent of those polled have a positive or very positive outlook for the ability of middle-market firms to raise new capital. Looking forward to the coming year, half of respondents predict a more difficult deal-making environment than 2019, 42 percent expect an environment similar to that of 2019, and 8 percent predict a less difficult deal-making environment.