Antares Capital, a provider of financing solutions for the middle-market, released its 2017 Market Outlook Survey of private equity borrowers, sponsors and investors in the middle market.

The survey, Antares Compass, examines post-election sentiment related to M&A activity, hiring and the state of the U.S. and global economies.

Antares Compass is unique in its ability to provide a more holistic view of the health and outlook of the middle market by combining insights from three fundamental sets of middle market participants – private equity firms, private equity-owned companies and institutional investors, such as banks, mutual funds, CLOs and insurance companies.

“Over the past two decades, we have built one of the largest portfolios of private middle market companies in the U.S.,” said John Martin, managing partner and co-CEO of Antares. “These companies represent a broad cross section of industries, so when they tell us they anticipate moderate to strong EBITDA growth over the next year, or they expect to increase hiring in the next 12 months, that’s something to pay attention to. Their insight in combination with those of private equity sponsors and investors, who sometimes offer alternative views on market dynamics, delivers a unique look into this critical sector of the economy.”

U.S. Economic Sentiment Remains Strong

Despite economic and political uncertainty across the globe, middle market private equity participants see the U.S. as a bright spot. More than 75 percent of all respondents expressed confidence in U.S. economic performance in the near-term. The prospect of a reduced regulatory environment and lower taxes were viewed as an opportunity by respondents.

However, outlook for the global economy is more cautious. Two-thirds of private equity sponsors who responded described themselves as pessimistic or uncertain about the global economy’s performance. Europe was listed as a particular area of concern due to Brexit and upcoming elections across the continent.

“In the U.S., despite a volatile few months politically, positive economic conditions and fundamentals have proven resilient and companies appear to be growing increasingly optimistic about their prospects for the next few years,” said Martin. “More specifically, investing and hiring activity are likely to remain high within industries such as Business Services, Energy, TMT and Healthcare that sponsors predict will experience the most growth over the next 12 months.”

M&A Expectations Vary, Positive Overall

Predictions for M&A activity are favorable, although they vary among survey respondents. Nearly three-quarters of sponsor respondents anticipate the same level of activity as last year, while nearly half of institutional investors who responded anticipate an increase in M&A activity in the next 12 months.

A potentially encouraging sign for the M&A environment this year is the fact that a majority of sponsors who responded cited having over 50 percent of their current fund available to invest, though inflated valuations will hamper a major uptick in M&A activity. Additionally, sponsors suggest that potential sellers could wait for increased clarity on tax reform before moving forward with a sale.

“In line with the survey results, it has been our view that ample liquidity in credit markets, renewed optimism for U.S. growth prospects and a more favorable regulatory and tax environment will likely help lift sponsored middle-market M&A activity in 2017,” said David Brackett, managing partner and co-CEO of Antares. “At the same time, rising optimism may also increase competition for quality assets at reasonable prices. In 2017, private equity firms will be challenged to be strategic in assessing the landscape and will have to continue to look for ways to differentiate themselves. The “smart money” will find new ways to innovate and create value by leveraging technology and data analytics to improve operational efficiencies, and drive functional best practices across portfolio companies.”