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CMF Associates Announces Economic, Socio-Political and Private Equity Predictions For 2017

Sees GDP Growth, Interest Rates, Oil Prices and U.S. Dollar Up, Unemployment Down; Mid-Market PE/M&A Deal Volume Up and YOY IPO Increase of 40%.

PHILADELPHIA, December 13, 2016 — CMF Associates, private equity’s preferred operating partner for finance and financial leadership, today announced its 2017 Predictions from the “Center Mid-Field,” forecasting that the U.S. will see significant change in GDP growth (from 1.8% to 3.1%), despite higher oil prices and interest rates. CMF also predicts that U.S. unemployment will decline from 4.88% to 4.7% and that the Euro will trade below $1.00 at some point during 2017.

On the socio-political front, CMF predicts that the U.S. budget deficit will decrease to $500 billion — driven largely by higher tax receipts — European election results will yield significant victories for right-leaning parties, and excessive Chinese debt will cause a meaningful decline in Yuan. In addition, the firm predicts that increasing DUI rates, criminal conduct and children’s use of marijuana will result in Colorado reconsidering legalization, and the Pittsburgh metro area’s GDP growth rate ranking will improve from 78th to 25th.

For middle-market private equity and mergers & acquisitions, CMF predicts a 10% increase in deal volume, multiples for healthcare business declining by more than 20%, and a substantial 40% year-over-year increase in initial public offerings. The firm also sees drug and medical device makers coming under significant government pressure to mediate pricing and expects Tesla to have a breakout year. In addition, the firm expects “cord-cutting” by households from their cable providers to expand.

Thomas Bonney, founder and managing director of CMF said, “Our work with over 125 PE funds and 500 middle-market companies has provided informed anecdotal data for CMF to see around the economic and socio-political corner. The past ten years of predictions have been fun and this 10th year looks overall to be the most bullish.”

This is the 10th anniversary of predictions from the Center Mid-Field. The complete list of 2017 predictions and highlights from previous years follow.

2017 Predictions from the Center Mid-Field

Economic Predictions

  • U.S. Unemployment ↓ from 4.88% to 4.7%
  • Labor Participation Rate ↑ from 62.8% to 63.1%
  • U.S. GDP Growth ↑ from 1.8% to 3.1%
  • WTI Crude Oil Prices Per Barrel ↑ from $42.01 to $48.00
  • Fed. Funds Rate ↑ from 0.38% to 0.85%
  • Ten-Year Treasury Note Rate ↑ from 1.78% to 2.75%
  • GBP/USD Exchange Rate ↓ from $1.37 to $1.23
  • EUR/USD Exchange Rate ↓ from $1.11 to $1.02 (at some point in 2017 the Euro will trade below $1.00)
  • USD/CNY Exchange Rate ↑ from ¥6.62 to ¥7.30
  • U.S. Savings Rate ↓ from 5.96% to 5.2%
  • U.S. Exports Per Month ↑ 0.2%

Socio-Political Predictions

  • Budget deficit decreases to $500B
  • Evidence of DUIs, criminal conduct and children’s use of marijuana results in Colorado reconsidering legalization
  • Chinese excessive debt causes meaningful decline in the Yuan; Chinese politburo is worried, which causes a decline in international aggressiveness, including cyber attacks
  • Relations between the Trump Administration and Mexico are just fine
  • Pittsburgh metro area GDP growth rate ranking improves from 78th in 2015 to 25th in 2016 (reported Sept. 2017)

Industry Predictions

  • Middle Market PE/M&A deal volume up 10%
  • Multiples on healthcare businesses decline by more than 20%
  • Drug and medical device companies come under significant government pressure to mediate pricing
  • Tesla has a breakout year
  • A tipping point has been reached where the adoption rate of cord-cutting by household of their cable provider accelerates
  • Number of IPOs will increase 40% YOY
  • Home construction and sales increase 3%
  • Average U.S. rig count for oil and gas moves from 489 to 675

Selected Predictions from the Center Mid-Field 2008-2016

2016

  • Hillary Clinton will not win Presidential election
  • Specialty retail stores close a record number of units
  • Philadelphia recognized as a top living and working destination for Millennials

2015

  • Cable begins to get disintermediated by the direct-to-consumer market; Netflix, HBOGo, Hulu, etc. take hold and cable companies start cutting costs
  • New housing starts increase by 15% (privately-owned housing starts increased 17.5% over September 2014 rate)
  • Nuclear deal done with Iran

2014

  • Falling fuel prices and industry competition result in record profits for U.S. airlines
  • JC Penney announces significant downsizing

2013

  • Large banks – JP Morgan, Citi, BoA, Goldman Sachs – see profits increase 25% (actual combined increase: 27%)
  • New Chinese leader Xi Jinping puts China back on growth track with 8% growth (actual through first three quarters of 2013: 7.7%)
  • U.S. budget deficit decreases from $1.1 trillion in 2012 to $700 billion (actual 2013 deficit: $680 billion)

2012

  • Shortage of skilled workers in many industries impacts public debate on worker training
  • Afghanistan provides unpleasant surprises (U.S.-trained “army” turned their guns on allied troops 36 times in 2012, killing 51)

2011

  • Retail comparative sales up 3.2% (actual: department stores up 3.7%, discount/variety stores up 3.0%, specialty apparel up 3.1%)
  • Significant Afghanistan drawdown regardless of situation on ground (actual: major drawdown announced, but only some decline in 2011)

2010

  • Niche manufacturing continues to prosper and begin significant exports (actual: exports for first half of 2010 were up 24.5%)
  • PE/M&A deal volume increases 30%-40% over 2009 deal volume (from 2009 to 2010 PE deal volume increased by approximately 44%)
  • Record number of students enroll in community colleges (total number of students enrolled in public 2-year postsecondary institutions peaked in 2010 at 7.2MM)

2009

  • Big pharmaceutical companies undergo significant reorganization in 2009-2010
  • Federal government begins formal program to reorganize major departments such as Homeland Security

2008

  • Uncertainty with the upcoming Presidential election and, in particular the capital gains tax situation, will keep deals going this year, but will cause decreases in new investments
  • Significant decrease in U.S. legal immigration caused by slowing U.S. economy, growing South and Central American economies and enhanced compliance procedures by employers
  • Uproar in U.S. over foreign investments in land, buildings and other “sensitive investments”

About CMF Associates

CMF Associates, LLC, private equity’s preferred operating partner for finance and financial leadership, delivers transaction- and transition-focused financial, operational, and human capital solutions to private equity backed portfolio companies. Headquartered in Philadelphia and with offices in Chicago, New York, and Vancouver, CMF’s offering includes interim CFO, COO, and controllership services; M&A advisory including pre-transaction due diligence, carve out services and post- transaction integration; full-time executive search; and deal sourcing.

Contact:
Sharon Alexander
Director
salexander@cmfassociates.com

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