The Top 50 Lower Middle Market Healthcare Investors & M&A Advisors 
Axial is excited to release its 2023 publication of the Top 50 Lower Middle Market Healthcare Investors & M&A Advisors.…
What does the New Year hold for M&A? We reached out a few Axial members for their predictions for the private capital markets in 2016. Several common themes emerged.
1) “The markets will be choppy due to the uncertainty of an election.”
“While the broad-based economic indicators for M&A remain largely unchanged (to slightly positive), we do know one thing for sure: There will be an election and that election will result in change,” says one investor.
Anticipation of that change has caused plenty of turbulence in the political world, but as November draws closer, “the markets will be choppy due to the uncertainty of an election,” says Dane Madsen, CEO of Blue Earth Labs. “Until the outcome is known, or at least there is a comfortable assumption of the outcome, then a trading range market with little sustainable direction will occur.”
The uncertainty of the change “has the potential to cause investors to take a somewhat more conservative view, especially in the middle of the year,” agrees the investor. He adds, however, that the election’s results won’t have “as much of an influence on strategic buyers, who can be longer-term thinkers and are sitting on massive cash reserves.”
2) Higher interest rates will… well, it depends.
“We all know by now that the Fed has raised interest rates (yawn),” says one investor, “which also has the potential to cause some investors to rethink their underwriting parameters, especially if there are signals for future rate increases.”
Amy Wolf, Kevin Charlton, and Charlie Baynes-Reid at River Hollow Partners agree that the impact of higher rates depends on the Fed’s future actions: “It depends largely on the Fed’s commitment to raise rates further through 2016 (as implied) until they see the full flow-through of the initial rise.”
“We think generally markets are going to remain strong although interest rate rises might hopefully start to temper seller valuation expectations — if that happens, it should be a very active year.”
3) Inflation should remain low.
Madsen says that “interest rates have been factored into the markets for some time. The question is inflation rates. Inflation should remain low given the energy costs and slowdown in China. India has a chance of fueling some global growth, but it’s not likely to impact inflation significantly.”
4) Renewables are hot, O&G is… uncertain.
What subsectors will see increased (or decreased) activity in 2016? Madsen predicts that Internet of Things companies “will get significant play with the mobile space being a continual hope/fear space.” Other predicted hot sectors include retail and security and safety services and products (“in light of the unfortunate global geopolitical crisis,” says one investor).
Wolf, Charlton, and Baynes-Reid predict that renewables-related industries will be good, while oil and gas will suffer. Another investor disagrees, however: “Oil and gas should be nearing acceptance of the new pricing norm and its U-shaped recovery, which will bring buyers back into the space. In fact, several funds have recently been raised to specifically target underperforming energy industry assets.”
5) “Strategic acquisitions by large players will continue.”
This prediction comes from Madsen, who believes that mid-market selling in general “will rise due to lack of obvious growth or public exits.” The caveat to increased strategic activity “is that the acquisitions will be at the large end of the middle where the acquisition will be accretive, or at the very low end where it is not a rounding error in earnings.”
6) Independent sponsors’ stars will continue to rise.
According to a September 2015 report by Rotunda Capital, “the harder fundraising environment, coupled with investment restraints and increased reporting requirements, has led more investment professionals to complete deals on a deal-by-deal basis as independent sponsors.”
Says Wolf, Charlton, and Baynes-Reid, “Increasingly sophisticated LPs, frustrated with fund economics, will continue their simultaneous flights from mega-funds and support of the growing independent sponsor community.”
7) Valuations may temporarily rise in the middle market.
One investor predicts that cyclicals like tech and consumer discretionary spending “will begin to taper off valuation-wise as enter the late stages of economic expansion. However, I think the valuation expansion has been focused on the larger companies so we may temporarily see valuation expansion for middle market companies in those industries (which would incentivize sellers).”
8) Mid-market activity will be “decent.”
According to Mary Miller, Director of Business Development at TSG Consumer Partners, “The market was particularly frothy in 2015 as founders opted to take advantage of a run-up in company valuations over the past two years. The deal flow in the middle market will likely have more longevity into 2016. The larger deals have taken the spotlight, but conditions in the middle market will still be very active.”
According to another investor, “All in all, 2016 is not expected to be as robust as 2015, but because of the generally positive economic conditions, activity should still be decent.”
Axial is excited to release its Q3 2023 Lower Middle Market Investment Banking League Tables. These quarterly league tables reveal…