Hot Topics: Private Equity and M&A Outlook - Trends and Opportunities

On December 5, 2018, the Manchester office of Nixon Peabody LLP hosted a Hot Topics in the Middle Market event entitled Private Equity and M&A Outlook: Trends and Opportunities. NP partner Andrew Share moderated a discussion featuring the following speakers:


-          Alan Fullerton, Partner, Mirus Capital Advisors

-          Andrea Haddad, Tax Senior Manager, Ernst & Young LLP

-          Bill Lemos, Resident Sales Director, Aon

-          Ivan Pirzada, Managing Director, Brown Brothers Harriman


A summary of the panelists’ observations on the current state of the Private Equity and M&A market and investment trends and opportunities is as follows:


Trends and Opportunities: The panelists agreed that 2018 was a hot seller’s market.  In today’s remarkably strong M&A and private equity market, sellers have been able to extract high valuation for businesses. Health care and technology are both industries that did very well in 2018. Physician groups have also become important players in the middle market. Looking into the next year, investors have little concern about interest rates and there is an expectation of continued growth. The panelists expect some softening of the M&A market, but overall are optimistic.

Tax Reform:  The panel discussed the effect of the Trump tax plan on the deal community, and general concerns regarding anticipated tax reforms. The panelists anticipated that issues relating to flow-throughs and international tax reforms may be unfavorable for the intercompany perspective in 2019. Currently the comment period for new tax regulation is open and proposed international provisions will add an unknown layer regarding  flow-throughs to individuals.

Diligence: There was general consensus among the panelists that investors have shifted their approach towards diligence. Although acquirers remain careful with their budgets, due to the strength of the M&A market fewer acquirers are able to remain competitive that refuse to do financial diligence before exclusivity. However, with the hot market some companies are rushing into the market without first adequately preparing themselves for the diligence process and the potential new tax issues. Another trend is that diligence of target's use and deployment of software is occurring in most deals, not only technology deals, as buyers are increasing their emphasis on the value of intellectual property in deal valuation.


Tariffs: The consensus of the panel was that the primary uncertainty regarding the global economy revolved around potential new tariffs. This is especially the case for the technology and chemicals sectors, both which face increasing exposure due to tariffs.