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M&A Engine Revs Up as Economic Optimism Whets Middle Market’s Appetite for Growth

New York — A new economic optimism appears to be sweeping the middle market as business leaders raise revenue forecasts and place M&A near the top of their 2014 growth agendas, according to a cluster of recently released studies.

This upbeat tone among middle-market leaders is particularly evident among privately held businesses according to professional services firm PwC, which polls CEO and CFOs as part of its quarterly Trendsetter Barometer study.

Ken Esch, PwC Private Company Services partner in charge of Trendsetter, says, “I think it’s clear that companies feel that the worst is behind them, and while we sense from what is being said that the optimism is building, we are now starting to see action, too.” Esch notes that “action” refers to an increase in planned “capital expenditures” and “M&A.”

According to the PwC survey, U.S. private companies raised their 12-month revenue forecasts year-over-year, predicting 8.5 percent growth. Additionally, PwC’s Trendsetter shows that projected increases in private-company revenue would continue to outpace forecasted U.S. GDP growth, which is expected to be roughly 3 percent for 2014.

PwC’s quarterly findings have recently been echoed by a variety of middle-market deal-makers who report that the optimism and push for growth is quickly expanding the deal pipeline.

“We’re seeing a lot of momentum and a lot of people looking to do transactions this year,” observes Michael Schwerdtfeger, a managing director at Chapman Associates, whose career deal-making totals more than $2 billion in completed transactions. “We’re right now talking to a company in the healthcare sector that is looking to branch out, and there is just a lot of excitement around the space.”

Meanwhile, Capstone Strategic recently released a study that surveyed 75 midmarket executives from multiple industries on their growth and discovered that 63 percent are considering M&A activity in 2014.

“When it comes to growth, the most common thing we hear is that business owners are now looking to do something different, and this often means buying their way into an expanded product line or a new geography because organic growth isn’t doing it,” says David Braun, CEO of Capstone Strategic.

According to PwC’s Esch, a shortage of qualified workers remains a primary barrier to organic growth among privately held firms. Moreover, the PwC study revealed that the majority (57 percent) of private companies surveyed are looking for new employees.

Says Esch: “As the economy improves and businesses experience new growth, the labor equation comes into play more and the concern becomes filling jobs with qualified workers — and they are just not finding all of the people they need.”

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