Strong Credit Market Environment Expected for Mid-Market Companies in Remainder of 2014, KPMG Survey

More Businesses Seeking to Raise Capital; Corporate M&A Activity Expected to Rise; Geopolitical Instability Creates Uncertainty


NEW YORK, Sept. 8, 2014 (GLOBE NEWSWIRE) -- According to a recent survey by KPMG LLP, the U.S. audit, tax and advisory firm, approximately 300 mid-market executives indicate that the credit markets' environment is improving and an increase in capital raising activity is expected during the remainder of 2014 for corporate mergers and acquisitions (M&A). However, respondents caution that geopolitical instability represents the greatest risk to increased credit market activity through the end of the year.

"For now, the credit markets are very aggressive across many sectors, and there is less of a gap between buyers' and sellers' valuation expectations than we've seen in recent years," said Ray Kane, managing director of Capital Advisory for KPMG Corporate Finance LLC. "But there is also a general concern that geopolitical unrest across the globe could diminish the rally in the debt and equity markets."

More capital raising, growth via acquisition on the horizon

Eighty-three percent of the mid-market executives are planning to raise capital in the second half of 2014, reflecting an increase compared to the results of a similar survey conducted by KPMG in December 2013, when 78 percent of those surveyed indicated they would be raising capital in the first half of the year. Although remaining relatively low, more respondents indicated they would incur debt in connection with an acquisition, said 14 percent, versus only 10 percent in KPMG's December survey. Additionally, the executives signaled they will seek out bank loans to refinance on more favorable terms (25 percent) and raise growth equity (15 percent) in order to raise capital in 2014.

"We're seeing increased optimism in the economy and, as a result, M&A volume may continue to increase during the remainder of this year. Buyers are gaining more confidence that rising purchase price multiples make sense, as the economy slowly but steadily improves.  What's more, since job and wage growth continue to be slow, and without meaningful increases in consumer spending, organizations lack confidence that their organic growth initiatives will result in robust growth rates. As a result, more acquisitions are being pursued," said Brian Hughes, KPMG's National Private Markets Group leader.

Forty-four percent of those surveyed indicated that corporate M&A would serve as the primary driver of credit markets activity in the second of half 2014, increasing from 36 percent previously. Expectations for private equity (PE) funded buyouts increased to 31 percent from 26 percent. Twenty-two percent of executives indicated refinancing would also result in credit market activity, increasing from 15 percent over the last six months.

The mid-market executives indicated that their organizations are not likely to issue dividends, dropping to two percent from 23 percent. "Many companies do not feel compelled to issue dividends in support of recaps since the Bush administration tax cuts expired, especially now that the tax rates are higher. We're advising organizations to try to find ways to increase revenue beyond organic growth, as opposed to generating returns of capital through financial engineering," said Kane. 

Geopolitical instability; Regulatory conditions; Interest rates

Twenty-six percent of respondents indicated that the biggest risk to the credit environment in the second half of 2014 will be geopolitical instability, whereas KPMG's December 2013 survey found that just 10 percent expected this to be the greatest credit risk in the first half of 2014. Inflation is cited as the second biggest risk, said 24 percent of the survey population, compared to 16 percent six months earlier. Executives were less concerned about the impact of loosening credit standards, which dropped to 15 percent compared with 23 percent at the end of 2013.

Regulatory conditions, including the new Dodd-Frank and Basel III rules, continue to affect credit markets' activity, but mid-market executives are beginning to adjust to the new regulations. Forty-five percent of respondents indicated that increases in bank regulations will have an impact on existing bank relationships, compared to 51 percent six months earlier. Thirty-one percent were unsure about the impact, and 24 percent indicated that there would be no impact.

"Regulators reviewing exposures at federally-chartered banks are very focused on credit standards, but there has been an explosion in both the number of capital providers and dollar amount of liquidity available to companies in the form of credit that's provided by nonbank lenders, which provide attractive alternative options to mid-market companies," said Kane.

Those surveyed are less concerned about rising interest rates affecting the leveraged loan market in 2014, dropping to 19 percent from 35 percent in December.  The sense is that an increasing number of capital providers that are loosening credit standards will possibly have the greatest impact on the leveraged loan market in the second half of the year, according to 30 percent of respondents, up from 15 percent. 

With the Federal Reserve's decision to taper its quantitative easing program – curtailing its bond-purchasing initiative – and concerns over inflation in the U.S., potentially resulting in higher interest rates, 51 percent of respondents expect yields to increase for the remainder of 2014, compared with 58 percent who thought there would be an increase in the first half of the year. Thirty-nine percent anticipate yields to remain the same, compared with 27 percent that thought rates would be the same in the first half.

About KPMG's Credit Markets Survey

KPMG LLP held the Semi-Annual Credit Markets Webcast in June 2014 and polled nearly 300 mid-market financial executives, investors and professional advisors from companies with revenue under $1.499 billion in an effort to gauge market sentiment for the second half of 2014. A replay of the webcast and be found by visiting KPMG Institutes.

About The Global KPMG Corporate Finance Platform

The platform of global Corporate Finance practices of KPMG International's network of independent member firms (KPMG Corporate Finance) have been ranked collectively as a top global mid-market advisor based on total deal volume announced in 2013, according to Thomson Reuters SDC. KPMG Corporate Finance firms operate in 155 countries with over 2,600 professionals who are able to meet the needs of clients across the globe.

About KPMG Corporate Finance LLC

KPMG Corporate Finance LLC, is a Delaware limited liability company, is a member of FINRA and SIPC. KPMG Corporate Finance LLC is a subsidiary of KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. For more information please visit www.kpmgcorporatefinance.com.

About KPMG LLP

KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the U.S. member firm of KPMG International Cooperative ("KPMG International"). KPMG International's member firms have 155,000 professionals, including more than 8,600 partners, in 155 countries.


            

Mot-clé


Coordonnées