I enjoyed reading the article titled "Economic signs point to slowing M&A activity" by Bill Wood (July 15, Page 8). I agree with much of Mr. Wood's economic commentary but cannot share his opinion that the data presents a negative outlook for M&A, particularly for midsize companies.
I agree that a 25 basis point adjustment by the Federal Reserve will have little effect on mid-size businesses in the plastics industry. My firm's clients and investors have indicated to us that a move of this magnitude will not significantly affect their investment decisions. It is also true that global events may be negatively affecting both cross-border M&A as well as business confidence by those larger companies who have customers and/or supply chains extending beyond U.S. borders. However, not all midsize plastics companies share this dependence on non-U.S. partners, and M&A among these companies is less affected by events in China, the United Kingdom and elsewhere.
If anything, these global events are affecting midsize plastic companies' customers, restricting their growth. In turn, the plastics suppliers are finding it difficult to grow organically and are turning to the M&A market to increase revenues and, consequently, the efficiency of their operations. Indeed, this has the effect of increasing M&A activity.
In a survey published last March, SunTrust Banks reported that more businesses were turning to M&A for growth. The survey found that 28 percent of midsize company executives have identified M&A as a top growth strategy, up from 26 percent in 2018.
The supply of capital is substantial as well. Pitchbook reports that capital available for investment among financial buyers is at an all-time high, and cash balances on strategic acquirors' balance sheets remain high, as it has since the Great Recession. This capital has the potential to fund acquisitions, particularly with companies controlled by owners that are reaching retirement.
Not all the statistics are positive for sellers of plastics businesses, though. GF Data reports that valuations for manufacturing businesses are on the decline. If an owner is considering a business sale, now may be the time while capital is available and before valuations fall further.
I appreciate Mr. Wood's analysis and appreciate the opportunity to present another view.
The Chicago Corp.