Small firms optimistic about future prospects

Larger firms not as bullish, study says

By: George Spohr
   Small companies are more optimistic about future growth than their larger counterparts, according to an annual study of merger-and-acquisition activity.
   The Columbia Business School’s study, released by New Jersey-based DAK Group, shows that owners and senior managers of privately held companies expect profits and revenues to rise through the end of 2005.
   The study includes responses from the owners of 548 privately held companies with revenues ranging from $5 million to about $100 million. Of those surveyed, 86 percent expect their company’s revenue to increase in 2005, up from 46 percent and 78 percent in 2003 and 2004, respectively. And 68 percent expect revenue to increase for the industry as a whole in 2005, compared with just 61 percent and 46 percent for 2003 and 2004, respectively.
   Further, 66 percent of respondents expect to increase capital expenditures, up from 50 percent in the 2004 survey. Consistent with respondents’ growth expectations, the study found that 86 percent expect the value of their business to increase in 2005, up from 84 percent in 2004 and 62 percent in 2003.
   "It is encouraging to see that business owners expect the growth trend that began in 2002 to continue in 2005," said Alan Scharfstein, president of The DAK Group.
   The survey results show that for the first time in several years, owners can rely on a combination of expansion and acquisitions to fuel growth as an increasing number of them prepare for an exit in the coming years.
   The survey also showed increasing confidence in business owners’ ability to control their own destiny through effective management of internal as opposed to economic and industry issues.
   The percentage of respondents expecting to sell their company within the next 12 months rose to 33 percent from 28 percent in 2004, and for the third year in a row, nearly two-thirds of respondents indicated that they expect to sell within the next three years.
   Consistent with business owners’ confidence in their ability to control their own destiny, exit decisions seem to be less influenced by economic conditions, as only 37 percent of respondents cited them as a factor in exit planning, compared to 52 percent in 2004.
   Outsourcing continues to be a major factor in exit strategy, with 69 percent of respondents citing offshore manufacturing or outsourced services moderately or significantly impacting exit plans, compared to only 47 percent last year.
   According to survey responses, acquisitions will play a smaller role in middle market private company growth over the next several years. Only 24 percent of respondents expect to make an acquisition in the next 12 months, the lowest percentage in six years. The DAK Group is an investment bank specializing in middle market M&A advisory services.