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What a drag: No.1 challenge to midmarket execs? Government

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What a drag: No.1 challenge to midmarket execs?  Government

Recent survey by CIT points the finger directly at Washington.

A recent survey by midmarket finance company CIT indicates that what ails midmarket businesses is not lack of innovation, lack of opportunity or low-wage workers in China. 

What ails midmarket businesses is Washington.

According to the survey, CIT: Voice of the Middle Market Perspectives from the Heart of the U.S. Economy, three of the top five challenges identified by midmarket executives are related to the federal government: compliance with healthcare laws, taxes, and regulations.  The other two – uncertainty in the US economy and the global economy – can also, in many ways, be traced back to governmental actions.

 

The attitudes of midmarket executives towards the government are striking.  President Obama?  An approximately 30% approval rating.  Congress?  5%.  Over half of midmarket executives strongly disapprove of Congress’ performance, and two-thirds disapprove of both Congress and the President.  And this was before the shutdown/debt ceiling disaster.

There's confusion, there's concern, there's a lack of clarity about the future that is holding things back right now. The climate for business, and the regulations that will affect it, are just unknown.Tom Hobbis, Managing Director and Co-Head of CIT’s Financial Sponsors Group, offered an explanation.

“There’s confusion, there’s concern, there’s a lack of clarity about the future that is holding things back right now.  The climate for business, and the regulations that will affect it, are just unknown.   I think if we’re able to get more clarity, and people are more comfortable about what the future may hold – and the future could be a year, three years, five years – then I think you’ll see middle market firms hiring more, feel more comfortable spending either the capital they have right now or that they’re able to borrow for things like acquisitions, new equipment, new facilities.  I think if we get a better climate in Washington, with more clarity, we’ll see a better outcome in the next few years.”

Middle market executives are also feeling a little ignored.  76% don’t believe that Washington recognizes the enormous contribution middle market companies make to the US economy, and fully 83% of don’t believe that Washington does enough to support the middle market.

The uncertainty created by the government has negatively affected M&A activity as well, according to Hobbis.

“There are a lot of great characteristics about the market for M&A– low interest rates, lots of cash available – but there’s just not a lot for sale right now. Entrepreneurs all want to sell their business at the right time at the highest multiple and at the time when their earnings are the highest.  Maybe they’re old enough to sell right now, and M&A multiples right now are pretty high. 

...there are so many regulations, so many tax concerns, ObamaCare – that’s really holding people back from making the investments themselves to grow their businesses and create those higher earnings.

“What’s missing, I think, are the earnings. Earnings are doing ok, companies are doing well, but I think that there are so many regulations, so many tax concerns, ObamaCare – that’s really holding people back from making the investments themselves to grow their businesses and create those higher earnings .  Particularly the Affordable Care Act, it’s causing confusion – how many people do we hire, what’s it going to cost us, how do we plan for this – and if we don’t know what that’s going to look like, we’re not going to do it. We’re going to sit on the sidelines. This has crept into earnings that are lower than they would like, so they’re not going to sell. They don’t have to sell. So they’re waiting to sell at the right moment for themselves.”

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