CIT Corporate Finance executives shared their insights on the challenges and opportunities ahead for middle market companies in 2014.
Restaurant industry trends to watch in 2014 include:
- Sales should increase in 2014 after looking at improved economic data, including resilient consumer spending, rising home prices and continued job creation. Commodity price concerns have improved after a record corn crop but beef prices could remain an issue while labor costs could rise with increases in the minimum wage.
- The most growth will come from fast casual brands. Chipotle, Panera, Five Guys and Jimmy John’s have been among the fastest-growing chains in recent years, and Noodles & Company and Potbelly Sandwich Works went public in 2013 in anticipation of continued growth. In addition, a number of emerging brands have plans to accelerate their new unit development.
- The favorable lending environment will continue. Large and middle market restaurant companies, as well as franchisees of top-tier brands, will have access to capital for acquisitions, remodels and/or new builds. Access to debt financing should continue to improve for smaller companies, but less well-known brands could still find it challenging.
2014 Commercial Real Estate Trends
- Low interest rates have resulted in increasing property values. Long-term mortgage rates currently start in the 5% range for class-A product, which is unprecedented over the last 50 years.
- The flow of abundant investment dollars into the sector from banks, insurance companies, commercial mortgage backed securities (CMBS) and foreign investors have fueled the sale and refinancing of properties during a recent wave of maturities in the CMBS market. This has helped mitigate any loss in value for properties financed at the height of the market in 2005 and 2007.
- Real estate is back in vogue as investors search for returns in a low-interest-rate environment. Many investors are choosing to put their dollars in hard assets, such as commercial real estate in a still uncertain environment. They can lock in rates for five to 10 years and expect to watch their rents increase over that time, to offset an anticipated rise in interest rates and adding value to what many feel is a more secure investment.
2014 Healthcare Trends
- Healthcare companies focused on growth and margin expansion are going to see increasing pressure to evolve from “fee for service” models to “fee for value” models with an emphasis on quality, low-cost outcomes. Better companies will thrive while weaker companies will be acquired, with increasing consolidation in many sectors.
- M&A in middle market healthcare after two consecutive years of decline will pick up. Consolidation pressure, and continuing Affordable Care Act implementation in 2014 will drive the increase. Strategic acquirers, both public and private-equity-backed companies, will be most active in the acquisition activity.
- Healthcare IT will become more integral to companies’ business models, as well as deal activity. Many healthcare-focused private equity firms are employing their industry expertise to evaluate IT platforms and deal opportunities.
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