What's driving middle market growth? Foreign deals, according to a 2008 forecast from middle market investment bank Focus LLC.
In a report out Friday, the Washington-based bank said that despite the threat of recession, 64% of U.S. midmarket companies posting $25 million to $1 billion in revenue should see growth over the next year, citing research from the Economist Intelligence Unit and CIT Group Inc. Foreign buyers are good acquirers for the U.S. midmarket crew because they're willing to pay healthy premiums, want to enter the market with a strong presence and are likely to seek out U.S. management teams that will stay in place. Given the weak dollar, Focus sees European and Indian buyers leading the U.S. midmarket dealmaking wave next year, and beyond. So who's selling? Baby boomers, for one. The report estimates 8 million privately held U.S. companies will be up for sale by retiring baby boomers in the next 12 to 15 years.
Despite the credit meltdown, financing will be available for middle-market deals in 2008, though lending standards have tightened, and as there's typically a slowdown of dealmaking following an election, many midmarket owners will not wait and opt to sell out in mid-2008, Focus said. Further, an IPO slowdown may drive more middle-market M&A. And on energy and cleantech: Investment will continue, consolidation will happen at the middle-market level, and despite rising energy prices, consumer product companies will still have a healthy year of M&A in 2008. — Carolyn Murphy
