Despite continued economic uncertainty, more than four out of five (82%) middle market executives have made at least one capital goods acquisition of significant value in the past year, and more than three-quarters (78%) say they plan to make one capital goods acquisition of significant value within the next six to 18 months.
These are some of the findings in the research study, U.S. Capital Goods and Equipment Financing Outlook: A Focus on Essential Acquisitions, released by CIT Group Inc. and Forbes Insights. This study is the latest research report from the CIT Outlook Series of exclusive industry studies focused on the perspectives of C-suite middle market executives.
The study gathered the views of 279 middle market executives on their capital goods decision making process and their outlook for equipment financing.
“Our study found that, despite general economic uncertainties, more than a third of executives reported their business need was simply too strong to delay their equipment purchase,” said Ron Arrington, Global President of CIT Vendor Finance. “Executives also indicated that customer demand made such investments mandatory, or pointed to emerging opportunities that required new equipment. And as they seek to acquire new equipment, nearly two-thirds said the availability of vendor financing plays an important role in their decision making process.”
Vince Belcastro, Managing Director and head of CIT Capital Equipment Finance, said, “Executives overwhelmingly indicated their intent to acquire capital goods over the next six to 18 months. For buyers, this could present an opportunity to negotiate a good deal on assets that can go a long way toward improving efficiency or perhaps growing top-line revenues.”
Key Findings from the Report:
WHEN MAKING A PURCHASE, CASH IS KING: As executives consider the purchase of capital goods, 54% indicate they would use cash; 45% cited bank credit lines; 32% said balance sheet financing; and 27% would use asset-based financing. In providing a reason for making a purchase now, rather than delay it, more than a third of executives (37%) said that the business need was simply too strong, 31% indicated that business opportunities required new equipment, and 30% reported that customer demand made such investments mandatory.
SEVERAL FACTORS IMPACT LEASE–VERSUS–BUY DECISIONS: When it comes to lease versus buy decisions, executives typically consider a range of factors, including the expected impact on cash flow (74%), the cost of capital (65%), the return on the capital (60%), depreciation (57%), maintenance (57%), and taxes (53%).
AVAILABILITY OF VENDOR FINANCING KEY: Whether in the form of a lease or a loan, nearly two-thirds of executives (62%) said the availability of vendor financing plays either an important (37%) or a very important (25%) role when deciding to acquire capital goods. Additionally, more than three out of five executives (64%) say they have chosen one or more vendors based on their ability to provide financing and 47% have ruled out one or more vendors based on their inability to offer financing.
A FOCUS ON EFFICIENCY GAINS: While many companies remain focused on cutting costs, some are getting leaner by buying new capital goods that deliver efficiency gains. For 31% of those who made an acquisition in the past year report that the capital good delivered efficiency gains.