Optimistic Chicago Dealmakers See Healthcare as Next Big Thing

Last week, Axial convened over 100 dealmakers at our annual Chicago Summit. While stock market volatility stole the headlines, conversations amongst the bankers, advisors, investors, and lenders who attended were largely optimistic.

We used the gathering as an opportunity to capture local dealmakers’ perspectives on the health of the overall M&A market, strategies for investing in the middle market, and the most promising investment opportunities in the region. Here’s what we found.

Healthcare Takes the Stage

A majority of the respondents (30 percent) believe that healthcare is the industry presenting the best opportunity for investors in the region. This was followed by 17 percent who see industrials as the strongest area for investment.

This outlook aligns with nationwide trends from H1 2015: Dealogic reported in July that deal volume in healthcare rose 5.3% from the same time last year. “This is without a doubt the most exciting time in the last 25 years of healthcare M&A,” noted Greg Park, US Healthcare Sector Leader for Ernst & Young Capital Advisors, LLC, in a July press release. Dealogic attributes the increased activity and deal volume thus far to increased competition and companies’ efforts to position themselves in an evolving industry.

Optimism Prevails

Sixty percent of the Chicago dealmakers predict M&A activity will either pick up or remain the same through the balance of the year. Like others in the industry, attendees seemed confident that recent stock market unrest wasn’t likely to affect mid-market M&A directly.

Forty percent of respondents believe that equity investments will see the largest share of deals by the end of 2015, while 37 percent pointed to asset acquisitions and sales, 20 percent to debt investments, and three percent to corporate mergers.

What Matters in M&A

When evaluating companies looking for a growth-oriented capital infusion or pursuing a sale, investors and advisors first evaluate the management team as a signal of success. Half of those surveyed see the strength of the company’s leadership as the most important indication that the company will prove to be a worthy investment. Forty-three percent told us that a positive record of growth was the key metric in judging a company’s potential.

Forty-seven percent of the dealmakers surveyed told us that middle market companies are actively pursuing mergers and acquisitions as they seek out growth strategies in the current environment.

Getting the Deal Done

Advisors and investor muse that sky high valuations are the key reason for deals that fall through. Thirty-seven percent say this is buyers’ biggest obstacle to closing deals right now. Other roadblocks include general competition from the buy-side, unrealistic pricing expectations from sellers, and the inability to find the best deals through the right intermediaries (17 percent for each).