More than a Third Will Raise Capital/Debt This Year as Business Leaders Indicate. They Will Invest in Geographic Expansion, IT, New Products and M&A to Fuel Growth
Middle market business executives predict an improved U.S. economy next year, and the vast majority says their companies are adding employees and enjoying stronger revenue, according to the 2013 Mid-Market Outlook Survey conducted by KPMG LLP, the audit, tax, and advisory firm.
In KPMG’s 2013 Mid-Market Outlook Survey, 73 percent of executives say revenues are up from prior year, a significant increase from 58 percent who reported such increases in KPMG’s 2012 survey, and 78 percent predict revenues will continue to rise in 2014.
Executives are equally optimistic on hiring. In fact, 45 percent say they’ve added headcount since last year, and 55 percent say they’ll hire in 2014, including 11 percent that expect to increase personnel by more than 7 percent over current levels.
“Middle market companies have experienced some positive momentum in the past year, and there is a growing confidence in the marketplace,” said Brian Hughes, KPMG partner and national leader of the Firm’s Private Markets Group. “These businesses are gaining a sense of stability and there is no question that companies will look to raise capital or debt, or put pent-up cash in play to invest in growth – both organically and inorganically.”
Growth is the name of the game
More than a third (41%) indicates that they plan to raise or refinance capital/debt this year, an indication that they are ready to put money back into the driving growth. In fact, 60 percent plan to increase capital spending over the next year, though publicly held companies (66 percent) are more bullish than privately held companies (58 percent). The highest priority investment area is geographic expansion, cited by 48 percent of the executives in the KPMG survey. Additionally, executives indicate that their top strategic initiatives for company management are significant investments in organic growth and entering into new markets.
Other significant areas of investment for mid-market companies are information technology (31 percent), including the use of cloud technology and data and analytics; new products or services (26 percent); and the acquisition of a business (26 percent). Supporting the investment in acquisition findings, more than half of the executives (54 percent) say their companies will likely be involved in a merger/acquisition in the next year.
“It’s interesting to see such a large portion of executives say they expect to be involved in M&A activity because it just isn’t the reality playing out in the market right now,” said Joe Rodgers, managing director with KPMG Corporate Finance LLC. “I think the interest is definitely there, but except for a pickup in activity at the end 2012 due to the pending tax increase, actual deal activity has been relatively slow, especially in a very supportive credit market. In the middle market space, the valuation expectations between buyers and sellers have been too far apart, but if the economy continues to gain steam, we should see more deals getting over the finish line.”
Despite all their optimism, mid-market executives point to several growth barriers and threats to their business models. The chief concerns cited by respondents are regulatory and legislative pressures (33 percent), and pricing pressures (32 percent).
“There is no question that this complex regulatory environment is weighing on executives’ minds,” added Hughes. “The implications and compliance requirements of Dodd-Frank and the Affordable Care Act, to name a few, are significant and companies are grappling with exactly how their business models and processes will need to be adjusted.”
THE KPMG MID-MARKET OUTLOOK SURVEY
The KPMG survey was conducted in the Spring and reflects the responses of 349 senior executives in companies with annual revenues in the $100 million to $1 billion range. Executives surveyed spanned 9 industry sectors, including banking, commercial real estate, food & beverage, insurance, investment management, media & telecom, pharmaceuticals, retail, and technology.
About KPMG LLP
KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the U.S. member firm of KPMG International Cooperative (“KPMG International”). KPMG International’s member firms have 152,000 professionals, including more than 8,600 partners, in 156 countries.
Contact: Manuel Goncalves
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