10th Annual Citizens M&A Outlook Finds Business Owners, Private Equity Firms Expect Wave of Deals in Second Half

Rhea-AI Summary

A survey by Citizens indicates that merger and acquisition (M&A) activity will likely increase in 2021 due to improving public health and anticipated capital gains tax hikes. Despite a general decrease in economic optimism, 55% of business leaders are confident in their own corporate outlooks. Key drivers include the ongoing vaccine rollout and favorable valuations. About 60% of executives expect M&A to boost corporate growth. However, confidence in deal completion has dropped significantly, highlighting a need for stronger partnerships in M&A processes.

Positive

• 55% of business leaders are optimistic about their corporate outlooks for 2021.
• 60% of executives expect growth to come from M&A activities.
• Pent-up demand for M&A is expected to drive deal flow, particularly in the second half of 2021.

Negative

• Only 47% of middle-market companies anticipate overall economic improvement.
• Confidence in deal completion has significantly declined, indicating challenges in M&A processes.

An improved public health environment and the possibility of higher capital gains taxes will likely drive increased merger and acquisition activity in 2021, according to a Citizens survey of 700 leaders at U.S. middle market companies and private equity firms.

Companies will rely on M&A for growth in 2021 and more sellers will be open to making deals, particularly in the second half, survey respondents said.

Typically, the economic outlook is the most significant factor in a company’s consideration of an M&A transaction. However, findings show that in 2021 COVID-19 and tax policies of the Biden administration are top drivers, with increased expectations for a M&A spike if the administration passes capital gains tax hikes.

Upbeat expectations for corporate valuations and deal flow in the year ahead are also fueling a decidedly optimistic M&A forecast.

“Many business leaders expect the continued rollout of vaccines and the prospect of increased taxes to spur a robust year in terms of deal flow, especially in the second half,” said Ralph M. Della Ratta, chairman, Citizens M&A Advisory.

“2020 left a backlog of pent-up demand for M&A. With strong valuations, we think a lot of PE firms and liquidity-seeking owners will be eager to get to the market,’’ added Jim Childs, CEO, Citizens M&A Advisory. “The pandemic may have been the last straw for many business owners who are looking to step back or retire.”

Key findings of Citizens’ 10^th annual Middle Market M&A Outlook include:

• The pandemic seems to have reduced overall economic optimism, with only 47 percent of middle-market companies anticipating broad improvement in 2021, but business leaders are more confident in their own corporate outlooks, with 55 percent feeling bullish about the coming year.
• The majority of business leaders (60 percent) expect corporate growth to continue to come from M&A activity, as strategic growth remains a top priority in 2021.
• Top reasons to sell were to increase the focus on strategic growth opportunities (67 percent) and to take advantage of current valuations (44 percent). The top reasons to buy were to increase revenue and growth (61 percent) and to improve operational efficiency (41 percent).
• Respondents gave the current M&A environment a muted grade, with nearly half of corporate (49 percent) and PE respondents (41 percent) characterizing it as weak. However, they agree that a turnaround is ahead. Thirty-six percent of companies and 45 percent of PE firms expect marked improvement in 2021, with a particular focus on the second half of the year.
• Interest in finding an international deal partner is down among both buyers and sellers, a trend for the past three years.
• Confidence in deal completion is down starkly and is an area where teaming with an M&A advisor could help to overcome deal roadblocks. Sellers are looking for a strong partnership to help them find potential offers – a need that didn’t make the list of top priorities last year.

The Middle Market M&A Outlook was conducted among U.S.-based, middle-market businesses ($50 million to $1 billion in revenue) that are currently engaged in or open to mergers and acquisitions activity, as well as private equity firms with clients in the same revenue range. Core business sectors included healthcare, technology, industrial, consumer services, B2B services and other industries.

Business executives at 470 middle market firms and 230 private equity firms who are directly involved in decision-making related to mergers and acquisitions (owners/partners, CEOs, presidents and other C-level and directors) completed a 15-minute phone or web-based survey during November and December 2020.

For more information on this year’s M&A Outlook, please go to 2021 Citizens Middle Market M&A Outlook.

Citizens M&A Advisory specializes in middle-market mergers and acquisitions as well as later-stage financing transactions. Citizens combines sector intelligence with a client-focused approach to realize our clients' true value. The Citizens team has closed more than 145 transactions in the last five years and has more than 80 M&A professionals specializing in a range of industries across the United States. Citizens M&A Advisory is part of Citizens Capital Markets, Inc., a subsidiary of Citizens Financial Group (NYSE: CFG).

For more information, please go to the Citizens website.

About Citizens Financial Group, Inc.

Citizens Financial Group, Inc. is one of the nation’s oldest and largest financial institutions, with $183.3 billion in assets as of December 31, 2020. Headquartered in Providence, Rhode Island, Citizens offers a broad range of retail and commercial banking products and services to individuals, small businesses, middle-market companies, large corporations and institutions. Citizens helps its customers reach their potential by listening to them and by understanding their needs in order to offer tailored advice, ideas and solutions. In Consumer Banking, Citizens provides an integrated experience that includes mobile and online banking, a 24/7 customer contact center and the convenience of approximately 2,700 ATMs and approximately 1,000 branches in 11 states in the New England, Mid-Atlantic and Midwest regions. Consumer Banking products and services include a full range of banking, lending, savings, wealth management and small business offerings. In Commercial Banking, Citizens offers a broad complement of financial products and solutions, including lending and leasing, deposit and treasury management services, foreign exchange, interest rate and commodity risk management solutions, as well as loan syndication, corporate finance, merger and acquisition, and debt and equity capital markets capabilities. More information is available at www.citizensbank.com or visit us on Twitter, LinkedIn or Facebook.

This is for informational purposes only and is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This material contains forward looking statements and there can be no guarantee that they will come to pass. Information contained herein is based on data from multiple sources and Citizens makes no representation as to the accuracy or completeness of data from sources outside of Citizens.

©2021Citizens Financial Group, Inc. All rights reserved. Banking products and services are offered by Citizens Bank, N.A., Member FDIC. Securities products and services are offered through Citizens Capital Markets, Inc., Member FINRA and SIPC. Citizens is a brand name of Citizens Bank, N.A.

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FAQ

What did the Citizens survey reveal about M&A activity in 2021 for CFG?

The Citizens survey indicated that merger and acquisition activity is expected to increase in 2021, driven by improved public health and potential capital gains tax hikes.

What percentage of business leaders are confident in their corporate outlooks in 2021 for CFG?

55% of business leaders reported feeling confident about their corporate outlooks for the year.

What are the top reasons for companies to engage in M&A according to the Citizens survey for CFG?

The top reasons cited for M&A engagement include increasing focus on strategic growth opportunities (67%) and taking advantage of current valuations (44%).

How has the pandemic affected economic optimism among middle-market companies for CFG?

The pandemic has led to reduced economic optimism, with only 47% of middle-market companies expecting broad improvement in 2021.

What challenges are anticipated in M&A deal completions according to the Citizens survey for CFG?

The survey highlighted a significant drop in confidence regarding deal completion, suggesting challenges that may require stronger partnerships.