Another big takeaway was that 57 percent of the respondents polled have noticed an uptick in institutional investors investing directly in middle-market deals, rather than gaining access through private equity fund managers. The results are based on a survey of 162 leading deal-making professionals.
Less than half –49 percent—of survey respondents believe the Trump Administration has had either a positive or very positive effect on private equity’s ability to raise new capital, with 44 percent saying the current government has had no impact and seven percent saying the effects have been negative or very negative. This result is in stark contrast to the responses from the 2016 year-end survey, where 79 percent of participants expected the Trump Administration to have a positive impact on private equity’s ability to raise new capital.
“Coming into 2017, there was a significant optimism in the middle-market M&A community that the new administration and an aligned Congress would have a positive impact on private equity investing. Surprisingly, that optimism declined significantly one year later, with more than 50 percent of ACG NY members indicating the President had either no or a negative impact on our industry,” said David Hellier, president of ACG New York. “With the new tax plan in place, we are hopeful that our members will see a meaningful uptick in deal-making confidence.”
According to the survey results, the GOP tax proposal (which recently passed) may benefit middle-market private equity, with 53 percent of respondents believing the plan will have either a positive or very positive impact; 19 percent said the effects would be negative, with 29 percent saying the plan would have no impact.
Hellier continued, “ACG New York’s annual survey serves as a barometer for the trends that drive middle-market M&A and capital raising activity during the coming year; and as the country adjusts to the new political administration and rides the buoyant markets, our members continue to be the pulse of what will be key factors in deal making.”
High valuations were another factor in middle-market deal making in 2017. According to 59 percent of survey respondents, the top driver behind this trend was strong access to inexpensive capital. Greater competition, cited by 21 percent of survey respondents, was the second-highest likely cause behind high-priced deals according to those polled. As for the deal-making environment in the coming year, 57 percent said it would be similar to that in 2017; 29 percent said it would be more difficult and 14 percent said it would be less difficult.
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This survey was conducted online and at events hosted by ACG New York during December 2017. A total of 162 respondents who work in the middle market participated in the survey. Full survey data is available upon request.