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Strong forecast for middle-market companies heading into 2015

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Strong forecast for middle-market companies heading into 2015

New survey confirms increasing aggressiveness among midmarket companies.

According to professional services firm CohnReznick, executives at US middle-market companies are ready to pull the trigger on transactions aimed at growing their businesses and creating jobs. New research commissioned by the firm also indicates that middle-market companies are confident in their ability to secure the necessary capital to complete a transaction before the end of 2014.

"Nearly one-fifth of middle-market companies will likely engage in a liquidity or capital formation event over the next six months."

The survey reveals an optimistic outlook on growth, access to capital, and liquidity among companies across many industries. Nearly one-fifth of middle-market companies will likely engage in a liquidity or capital formation event over the next six months, triggering a significant wave of potential jobs and revenue for banks, consultants and services providers. Respondents identified likely sources of capital as traditional banks, investment banks, private equity firms, venture capital firms, mezzanine lenders, crowdfunding, and IPOs.

“Middle-market businesses are the most important growth engine in the U.S. economy and a critical component to job creation,” said Dom Esposito, CohnReznick Partner and leader of CohnReznick’s National Liquidity and Capital Formation Advisory Group. “When we hear from executives that they are optimistic about access to capital and comfortable enough to conduct a significant financial transaction in the short-term in order to grow their business, I think it bodes well for middle-market growth and the direction of the U.S. economy.”

However, when pressed about the JOBS Act, which many have credited as a driving force behind the economic recovery and a robust IPO recovery in the U.S., only one-third of executives at smaller middle-market companies claimed to be familiar with the key elements of the legislation that could benefit their organization.

“The JOBS Act is a remarkable piece of legislation, but unless the smaller middle-market businesses which it is designed to help are leveraging the benefits, its effectiveness as an economic stimulus will remain underutilized,” said Cindy McLoughlin, CohnReznick Partner and leader of CohnReznick’s National Liquidity and Capital Formation Advisory Group. “Clearly, the SEC and members of the capital markets ecosystem must do a better job educating smaller company executives on the benefits of the JOBS Act, provide definitive guidance on equity crowdfunding, and formalize the Reg A+ provisions. We believe it is time for a JOBS Act II – the sooner the better.”

According to the report:

  • 20% of middle-market companies will likely engage in a liquidity or capital formation event over the next six months. With nearly 200,000 middle-market businesses in all industry segments and geographies, according to the National Center for The Middle Market, this could mean a considerable number of transactions through the end of 2014.
  • 88% of middle-market executives, who would likely invest raised capital in an increased workforce, would moderately or greatly increase hiring volume.
  • Only 35% of middle-market executives reported being somewhat or very familiar with the various components of the JOBS Act.  50% of larger companies are somewhat or very familiar with the various components of the JOBS Act while only 27% of smaller companies reported as being somewhat or very familiar.
  • Only 28% of middle-market executives said that they are somewhat or very comfortable with crowdfunding as a legitimate means of raising capital. And when it comes to raising capital, only 2% of middle-market executives will investigate provisions of the JOBS Act, including crowdfunding, as a potential source of capital.

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