Antares Capital Compass Survey of the Middle Market Points to Higher Levels of Economic Confidence

Survey results suggest the middle market is ripe with opportunity in 2021 with heightened expectations for deal-making as well as widespread global economic optimism

CHICAGO--(BUSINESS WIRE)--Antares today announced the launch of its fifth annual outlook survey, Compass 2021 https://www.antares.com/compass-report-2021/ presenting analysis of perspectives on the middle market from portfolio companies, private equity sponsors and investors.

The report suggests confidence in the U.S. economy and private markets has returned to pre-Covid levels, despite some lingering financial stress in some areas.

2021 Will See Strong Economic Rebounds

Despite market uncertainty at the height of the pandemic, positive economic sentiments have sharply rebounded in 2021. 59% of sponsors and 74% of investors are confident in the global economy over the next 12 months, up dramatically from 24% and 55% for the same groups, respectively, in 2020. Participants also report a 2021 recession is “very unlikely” despite lingering levels of financial stress in borrower portfolios.

“Middle market participants expect high levels of deal activity, as well as revenue and EBITDA growth as we emerge from Covid-19’s headwinds,” said David Brackett, chief executive officer of Antares Capital. “Although survey results indicate a few bearish perspectives, participants see fiscal and monetary stimulus coupled with high infrastructure spending as strong tailwinds against potential challenges like rising taxes and regulation.”

New External Business Challenges Emerge for Borrowers

Borrowers see new business challenges emerging in 2021. Covid-related restrictions, lingering challenges to the supply chain and raw material cost increases were the highest expected business challenges for the year. Industry headwinds and geopolitical risks, typically seen as highly problematic external business factors, ranked lower on the list than in years prior.

Widespread Middle Market Resiliency

Survey results highlight increased investor interest in private debt due to higher yield premiums, favorable middle market performance throughout the stress of 2020 and a desire to tilt toward floating rate assets to hedge against inflationary risk. The report suggests a significant uptick of investors expect leveraged loan volume to rise this year, with 74% predicting volumes to increase in 2021 compared to only 19% in 2020.

Interestingly, the survey suggested higher demands from private equity sponsors selling portfolio companies to a SPAC rather than raising money for such a company. Findings suggest 60% of private equity sponsors might sell their portfolio company to a SPAC, while a lesser 20% said they might raise funds to establish one.

Deal Activity and M&A Expectations on the Rise

Most sponsors and investors expect M&A activity to pick up in 2021, with about 2/3rds expecting upticks in LBO’s and add-ons activity – up sharply from last year’s reading.

Key factors that indicate rising middle market M&A volume include increased capital market liquidity year-over-year and consistent levels of dry powder going into 2021. These influences are supplemented by a backlog of delayed transactions caused by the pandemic. Sponsors’ portfolio company sales are also likely to increase in 2021 with 67% expecting higher exits compared to a reported 21% in 2020.

“Today’s middle market features favorable conditions for private equity transactions,” said Brackett. “Survey participants are eager to deploy dry powder. We continue to expect higher than average capital market liquidity leading to significant deal-making in the near-term.”

About Antares Compass

The full survey results, including additional analysis and survey methodology, is available by visiting https://www.antares.com/compass-report-2021/

Antares Compass provides a holistic view of the health and outlook of the middle market. It combines insights from a fundamental set of 100+ middle market participants and spans several industries and end markets. Participant groups include middle market companies, private equity sponsors, and investors that identify as a bank, BDC, CLO, insurance company, mutual fund, or non-bank leader.

About Antares

With approximately $30.8 billion of capital under management and administration as of December 31, 2020, Antares is a private debt credit manager and leading provider of financing solutions for middle-market private equity-backed transactions. In 2020, Antares issued approximately $14 billion in financing commitments to borrowers through its robust suite of products including first lien revolvers, term loans and delayed draw term loans, 2nd lien term loans, unitranche facilities and equity investments. Antares’ world-class capital markets experts hold relationships with more than 400 banks and institutional investors allowing the firm to structure, distribute and trade syndicated loans on behalf of its customers. Since its founding in 1996, Antares has been recognized by industry organizations as a leading provider of middle market private debt. The company maintains offices in Atlanta, Chicago, Los Angeles, New York and Toronto. Visit Antares at www.antares.com or follow the company on LinkedIn at http://www.linkedin.com/company/antares-capital-lp. Antares Capital is a subsidiary of Antares Holdings LP, (collectively, “Antares”).