Middle Market M&A Trends

By Generational Equity


Recently PitchBook and the Association for Corporate Growth co-hosted a webinar entitled “Putting Middle Market M&A on Top: Past, Present & Future.” The panelists included James Gelfer, Senior Analyst, and Dylan Cox, Analyst II, both with PitchBook.

The goal of this webinar was two-fold: To bring participants up to speed on where middle market M&A is today and, more importantly, to provide information on where we are heading in 2018 and beyond.

Here is a synopsis of their findings:

Middle-market M&A deal-makers are facing as competitive a landscape as any time in the last decade. Dry powder in private equity vehicles has reached all-time highs, while public equity valuations and cash on corporate balance sheets continue to climb.

At the same time, the M&A boom of the last few years has left fewer viable targets in the market, wrenching up the pressure on diligence and deal sourcing. Private valuations have soared along with their public counterparts, but opportunities remain in select sectors and segments of the market.

The key part of the paragraph above is the segment in bold. Based on conversations we have regularly with professional buyers, the biggest issue they are collectively facing is that there simply are not enough businesses in the market today to acquire.

When we bring this up at our exit planning conferences, most attendees are surprised. When it comes to selling a company, far too many middle market business owners believe that their company is either too small and/or in an industry that buyers simply are not interested in.

Reality is not in agreement with that line of thought. Over the past few years we have sold companies to buyers in industries that many consider far from sexy. If you are interested, have a look at just some of the industry sectors where we have closed deals:

I purposely selected three of the least sexy industry segments you can imagine to prove my point: Don’t assume that just because of your company’s industry or size that it is not potentially desirable to business buyers.

Why Do Professional Buyers Acquire Middle Market Companies?

Professional buyers generally have mandates that revolve around key strategies that the company may be pursuing. Some we have seen include:

  • Geographic expansion

  • Product line addition

  • Vertical and horizontal integration

  • Economies of scale

  • Access to skilled employees

And these are just a few examples. Here are some facts to ponder:

  1. Big companies really do buy small companies
  2. Buyers might see different opportunities for growth than you do
  3. Buyers are buying your future, not your past
  4. Often you are too close to the daily grind to realize the significant opportunities your company can capitalize on in the hands of new ownership
  5. Your company probably has significant “intangible assets” that an experienced M&A team can leverage to attract buyers
  6. You most likely have been minimizing your pre-tax profits for years. Recasting allows you to present the true profitability of your organization

You may now see you have lots to learn about selling your company for maximum profit. Most middle market business owners do. That is why we hold educational, no-obligation exit planning conferences throughout North America. Investing a few hours of your time could pay off handsomely as you begin to examine your exit opportunities. To learn more about Generational Equity and what we offer business owners, please use the following links:

And no matter what you end up doing with your business in 2018, do not sell it short! The right buyer will most likely pay a premium for your business.

By Carl Doerksen, Director of Corporate Development at Generational Equity.

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