Latest Survey Reveals 89% of Executives are Confident in the Strength of the U.S. Business Environment in 2018
Survey Participants Showed GOP’s Proposed Limited or Eliminated Deductibility of Interest Expense will have Impact on Ability to Invest or Acquire Business
NEW YORK, NY (October 24, 2017) – A clear majority of companies and investors are exceedingly optimistic in the strength of the United States business environment, according to a survey of investors and middle market executives conducted by CohnReznick LLP, one of the leading accounting, tax, and advisory firms in the United States. Eighty-nine percent of those surveyed—compared to 80% last year—were very confident in the business environment, indicating a strong forecast for growth heading into 2018.
CohnReznick surveyed 120 executives and investors at its seventh annual Liquidity and Capital Raising National Forum, which was held in New York City on October 17 and included more than 200 attendees.
Taking current market factors and economic conditions into consideration, a vast majority of participants (94%) believed the next 6-12 months will be a good time to borrow money. Within the same timeframe, 81% respondents considered it to be a good time to pursue a merger or acquisition, but only 44% (down from 51% last year) would consider acquiring a business whose headquarters were located outside of the United States.
When acquiring a company, integrating the new acquisition was the top concern for almost half the participants (42%), while only 16% of participants believed purchasing price was a critical concern.
“Given the substantial number of add-on acquisitions and overall consolidations in the current market, it was encouraging to note that most respondents saw integration as the most critical aspect when acquiring a business, well above and beyond the price paid,” said Jeremy Swan, Managing Principal of CohnReznick’s Financial Sponsors & Financial Services Industry. “We are in a market environment defined by high valuations and significantly higher demand for quality assets than the supply. Proper and timely integration of these assets is critical to a business' success and meeting the growth goals of each acquisition.”
Obversely, 88% thought the next 6-12 months would be an ideal time to consider selling a business. Ninety-three percent of those surveyed believed that a strategic investor (i.e. competitor or corporate) would offer the greatest price for their business, compared to 7% feeling the best deal would come from a financial investor (i.e. private equity, venture capital or family office). When selling a company, negotiating a favorable transaction was the top concern (33%) among those surveyed. Exiting with enough capital (23%), selecting the right buyer (16%) were also top of mind.
When surveyed on ability to achieve company’s financial goals, 79% were very optimistic about attaining financial goals in 2018. Twenty-nine percent would use cash on hand, 25% would choose a commercial bank, 17% would select a venture capital firm and 10% would use an investment or IPO/Public offering over the next 12 months as a primary funding source for the company’s growth initiatives.
Additional findings included:
- Deductibility of Interest Expense – Only 46% percent of surveyed participants believed that if the GOP’s tax proposal for the partial limitation (or elimination) of the deduction of net interest expense is approved, it will have a significant impact on their ability to invest in and/or acquire a business. Thirty-two percent felt it would have minimal impact and 22% felt it wouldn’t create much change.
- Shifting from Depreciation to “Immediate Expensing” – Sixty-three percent of those surveyed felt that switching from the depreciation of capital investment over time to “immediate expensing” of capital investment would stimulate additional investment activity.
- Sustainable Market Valuations – Seventy-five percent of those surveyed believed that today’s market valuations were sustainable for their industry in the next 6-12 months.
“Respondents enthusiastically indicated that next year would be an ideal time to borrow, acquire or sell a company, and we’re encouraged by the momentum for transaction activity and their optimism about the 2018 business environment,” noted Swan. “Interestingly, respondents were less conclusive about the impact of possible changes coming from the GOP’s tax proposal. More clarity will come when we see how the deal is structured, as the tax proposal has the potential to significantly impact financial sponsors, especially the private equity space.”