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Sponsored by: KeyBank
Updated: July 26, 2021

Why middle-market M&A could break records this year

As our country continues to get a handle on the COVID-19 pandemic and there is less uncertainty in the economy, business optimism is rising, and pent-up demand and ample cash reserves within middle-market companies may drive M&A activity to reach record levels in 2021.

Chip Kelley, KeyBank Market President and Commercial Sales Leader

So indicates a recent Middle Market Business Sentiment Survey released by KeyBank, which showed a positive improvement in middle-market sentiment across the board in early 2021. More than half of the businesses surveyed told us they are “very likely” or “extremely likely” to complete an acquisition in the next six months.

Of course, the upsurge in deals will vary by industry, with healthcare and technology continuing to lead the way. Here’s a look at three factors that we, at KeyBank, see driving the middle-market M&A boom:

1. Completion of transactions put on hold in 2020

Many deals on track for completion simply went into limbo when the economy shut down in spring of 2020. In some cases, companies that were just a few weeks away from closing on transactions in March or April of last year put them on hold to focus on liquidity and running their businesses as economic uncertainty loomed. But by the end of 2020, the companies that survived began restarting the M&A process, creating a record backlog of deals closing through the first half of this year.

2. Accelerated deals due to tax concerns

More than half of the business executives surveyed by KeyBank said that they’re concerned about the potential for higher tax rates. Many entrepreneurs and business owners view some of the elements of the Biden administration plan as quite punitive for someone selling a business and are accelerating their sales plans in this year to avoid the bigger tax bite.

3. Abundant liquidity

Amid the uncertainty of 2020, many public-sector corporations and private equity firms opted to sit on their cash reserves to see how the market played out. Now that the economy is starting to move again, they’re eager to deploy that cash.

According to Jeff Johnston, KeyBanc Capital Markets Managing Director & Group Head of Mergers & Acquisitions, there is roughly $2 trillion in private equity funds today. “And that’s just the equity,” said Johnston. “If you assume you can get four to six plus times leverage, the buying power is tremendous.”

Is M&A a part of your business growth strategy?

As with any business growth strategy, working with an experienced commercial banker who understands your industry, market, and business objectives is critical for success. A banker with expertise, capital, and flexibility can accommodate your organization’s lending, expansion, and acquisition needs, and help you navigate financing options right for your business.

KeyBank is uniquely positioned to deliver companies a broad range of relevant and tailored financing solutions – everything from extensive capital markets capabilities through KeyBanc Capital Markets® Inc. to a comprehensive variety of on-and-off balance sheet solutions. Whether you are contemplating growth through merger & acquisition or some other means, KeyBank offers comprehensive solutions and insights customized to your business needs. 

Raymond “Chip” Kelley is market president and commercial sales leader for KeyBank’s Maine Market. He and his team help businesses of all sizes achieve their goals. He can be reached by phone at 207-874-7045 and by email at Raymond_T_Kelley@KeyBank.com.