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Merger-Minded Business Leaders in Short Supply Despite Growing Middle-Market Optimism

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As we advance into the second half of 2013, there are growing indications that business sentiment is improving despite nagging unemployment numbers and a shortage of merger-minded CEOs.

Cindy Crotty, middle-market business watcher and head of KeyBank’s commercial banking segment, once more shared with Middle-Market Executive the findings of a KeyBank’s middle-market business sentiment survey, which reveals that merger-minded business leaders remain a minority in 2013.

timthumb-150x150“Unless middle-market firms find greater clarity in terms of projecting their revenues, they are just not willing to take the integration risk of an acquisition,” explains Crotty, who says that while a majority of companies may have passed on M&A, business leaders say that they expect to expand their businesses within the second half of the year by adding employees or equipment or adding new facilities.

“It seems that the services and construction sectors are among the most likely to expand, which also makes sense since services firms typically hire higher numbers of employees,” explains Crotty, who notes that despite some hiring inside certain sectors, job growth or lack of it remains the most significant factor having a negative impact on business sentiment.

“The unemployment aspects of the economy have replaced the fiscal cliff as the chief concern,” says Crotty, while referencing the economic dilemma that had cast a pall over the federal government and business climate last fall.

Still, KeyBank’s findings reveal a marked improvement over the finding of a fall 2012 KeyBank report released last November in the wake of the presidential election.

“We found the sentiment to be less negative, which we are interpreting as more positive, and that’s aligned with what we were hearing from our clients, so we were pleased that it really did align with the view from our inside baseball field,” says Crotty, who adds that middle-market firms appear to be increasing their year-over-year cash reserves and are also more confident that they can get the credit they need.

Crotty says that the proportion of middle-market companies indicating that they have more cash reserves compared to last November has increased significantly. According to the KeyBank findings, about half of companies plan to increase their cash reserves in the next 6 months.

“We were hoping that there would be more of a shift here, but clearly 50% of business leaders are looking to increase their liquidity. I think that these companies are doing well, and if they do not plan to invest in additional plants or people or equipment now, they are going to sit on it and wait for the right time to invest it,” says Crotty.

In the realm of regulatory issues, Crotty says that growing healthcare costs remain a primary concern.

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