Momentum is building in the middle market, and dealmakers are predicting that 2017 will be a good year for M&A. Innovations in technology and shifts in consumer populations all over the world promise to drive private equity investment in these seven subsectors: cybersecurity tools; cloud-computing services; medical devices; specialty chemicals for agriculture; packaging for consumer goods; construction materials; and aircraft parts and services.
The threat of cyberattacks really can’t be underestimated, as recent events have demonstrated, such as the breach of 500 million Yahoo accounts; the widespread outages of websites resulting from denial-of-service-attacks on Internet infrastructure provider Dyn, now being acquired by Oracle Corp. (NYSE: ORCL). Companies offering protection have become highly sought targets for acquisition. Among the firms expected to continue snatching up cybersecurity providers are the Chertoff Group, Thoma Bravo, TPG and Vista Equity Partners.
The ongoing transition to cloud computing, which leverages networks of remote servers hosted on the Internet to deliver efficient, inexpensive services, will continue to fuel PE investments by firms, including Apollo Global Management LLC (NYSE: APO), the Blackstone Group LP (NYSE: BX), HGGC, the Riverside Co. and Thoma Bravo.
Innovations in medical devices will continue to drive M&A. Genstar recently sold Mountainside Medical, which makes instruments, such as laparoscopes and endoscopes, to Tecomet Inc.
Makers of specialty chemicals used in agriculture are increasingly in demand, as the need for more food rises with the global population. Advent International is one firm focusing on the sector.
Mass markets of consumers are developing in Africa, Asia and Latin America, and companies that produce packaging for the surge of consumer goods are quickly becoming desirable targets. Platinum Equity and Wind Point Partners have made recent deals.
Construction spending is up, driving M&A in a wide array of related industries, from hardwood to foam insulation. Among recent PE buyers are: Arsenal Capital Partners, Audax Private Equity, CenterOak Partners and Meridian General Capital.
Airline passenger traffic throughout the world has been growing and is expected to continue, fueled by a growing middle class in key emerging markets and intercontinental hubs in Asia-Pacific and the Middle East. PE firms are investing heavily in the sector, including AE Industrial Partners LLC, which raised a $680 million debut fund to focus on the aerospace industry. Air traffic is expected to double over the next 20 years.
In addition to these industries, some dealmakers predict there will be an uptick in M&A in financial services, infrastructure and defense, due to the outcome of the U.S. election.