Middle Market Sized Deals Will Lead in 2023

By Generational Equity


After a rough 12 months for M&A transactions valued over $500 million (which is expected to continue in 2023 with rising interest rates and the threat of inflation), it is great to learn that the one segment that thrived in 2022 and will continue to do is the middle market and even more so the lower middle market (definitions vary but the middle market is often defined as deals valued below $500 million and the lower middle market are those below $100 million in valuation).

This is great news for most owners of privately held companies because according to census data, the vast majority of U.S. based businesses are valued in the lower middle market. In fact according the latest U.S. Census/County Business Patterns series counted 8,000,178 establishments in the U.S. Most (6,819,150) had less than 20 employees and averaged about 4.4 each. That’s about 85% of the businesses in the U.S. counted in the lower middle market!

So, I read with great interest a recent study on projected deal making by Ernst & Young (EY). Entitled, “Small Deals Will Be a Bright Spot Heading Into 2023” and published in The MiddleMarket.com, the point of the article was summed up this way:

It was a tough year for dealmakers. Inflation, geopolitical tensions, and a lack of liquidity squeezed the mergers and acquisitions market. Global M&A deal volume has declined 36 percent compared to 2021, according to Refinitiv data. All sectors have declined. However, there has been a noticeable rebound in the smallest M&A deals.

The EY team believes this trend is sustainable. “We expect to continue to see this strong flow of smaller deals throughout 2023, as CEOs remain cautious as a result of ongoing geopolitical tensions and heightened uncertainty,” says Andrea Guerzoni, EY’s global vice chair of strategy and transactions. “Deal financing challenges on the back of higher interest rates, increased costs of financing, and regulatory scrutiny will also make smaller deals more attractive.

This has been a trend the deal teams with Generational have been seeing for years: Smaller, lower middle market deals continue to grow in popularity, and this will certainly be enhanced in 2023.

So when you hear that M&A activity is in overall decline from the main stream business press, keep in mind that it is often the firms that focus on mega, billion dollar deals that are interviewed ad nauseum by the likes of the WSJ, Barons, Forbes and others. But as we have seen, 85% of business owners just like you operate and thrive in the lower middle market, a fact that should not dissuade you from following your exit plans.

Assuming you have growth and exit strategies in place (and sadly far too few don’t in this segment of the business world) you need to stay the course and realize that the segment you are in is amazingly attractive to professional buyers of all types including strategics, private equity firms, family offices, high net worth individuals and foreign entities.

However, to ensure that your business is buyer ready and prepared for buyer scrutiny, you need accelerated growth plans to make it more attractive and documentation that shows your business in the best, most accurate light.

Unless you have built and exited a business before you most likely are unaware of how to develop and implement accelerated growth strategies nor how to create effective accurate documentation that will attract professional buyers like those listed above.

If that description matches you, I would invite you to attend a Generational Growth and Exit Strategy conference near you. You can find one in your area using this link. You can also see a full agenda of what you will learn here.

Most importantly you will learn that building a buyer ready business is not rocket science, it takes knowledge, skill, and intentionality. Here are what a few of our Generational Consulting Group clients have to say about our accelerated growth programs:

Now as bright and hard working as these folks are, I would bet you are as well. The difference between their future and yours is action: As in taking action to aggressively pursue your business dreams and goals.

Attend one of our conferences and find out more!

Carl Doerksen is the Director of Corporate Development at Generational Equity.

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