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Nearly two-thirds of deal makers believe midmarket transaction activity will increase

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Nearly two-thirds of deal makers believe midmarket transaction activity will increase

Majority of middle market investors predict private equity returns to outperform public equity returns over next 3-5 years.

According to a new survey by middle market deal-making association ACG New York, the majority of midmarket deal makers believe that middle market transaction activity will increase, despite unsustainable valuations. The survey is based on responses from more than 200 ACG New York members who are leading dealmakers in the middle market.

The recently conducted survey found that the nearly two thirds (64%) of respondents believe there will be an increase in middle market transaction activity through the remainder of 2014 and Q1 of 2015. Nearly three quarters of respondents (74%) believe that deal flow remains strong and that the uncertain tax environment is neither inhibiting transactions nor making sellers reluctant to sell their businesses.

"47% of those polled maintain that there is a disconnect between buyers and sellers when it comes to valuations."

Regarding private equity returns, the survey also found that more than half of respondents (56%) predict that middle-market private equity returns will outperform smallcap public equity returns over the next three to five years.

"Middle market businesses employ over 44 million people in the U.S. and represent nearly a third of U.S. GDP.  They are the bread and butter of the United States' economy and private capital is their growth engine. From 1995 through 2010, private capital-backed companies grew jobs by 64.4%, while all other companies in the U.S. economy grew jobs by 18.3%. Our survey demonstrates confidence that private capital investments into the middle market will continue to drive sales and job growth throughout this decade in the U.S. and generate long-term returns for investors," said Martin Okner, Chairman of ACG New York.

When it comes to valuations, more than half of respondents believe that businesses currently selling are achieving reasonable valuations, but that these valuations are not sustainable. More than 45% believe that high valuations are mostly a result of a great deal of money chasing fewer quality deals.  Additionally, 47% of those polled maintain that there is a disconnect between buyers and sellers when it comes to valuations, but that the gap is closing.

"ACG New York members live and breathe the middle market. As we close out 2014 and look toward 2015, we thought it would prove insightful to take the pulse on what these professionals predict for the upcoming months, and we were right!" continued Mr. Okner. "Given the results of the survey, we are confident that the middle market will continue to drive strong transaction activity and support economic growth for the foreseeable future."

When polled about what industries professionals believe will achieve the highest level of deal flow in Q4 2014 and Q1 2015, 39%, answered technology. Following that, 37% believe healthcare will experience the most deal flow, and over a quarter (28%) thought it would be the oil & gas industry.

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