For more than a century, dramatic surges in M&A activity have come and gone. There are several principle factors that contribute to these changes, such as, economic outlook, financing alternatives, credit markets, price expectations, strategic opportunities and sector challenges. History has proven that mid-market activity has been the precursor to larger market optimism.
Today and for the next ten years it is estimated that there will be more money devoted to acquiring mid-market businesses than ever before in history. Privately held business owners with planned exit strategies are going to be the primary benefactor of this activity as the trend towards quality is expected to continue.
Standalone mid-market companies offer considerable synergistic opportunities for potential acquirers, with conditions remaining favorable for increased deal making in the future. Strategic buyers continue to sit on large cash reserves waiting for the right circumstances to acquire, and private equity is under pressure to do deals given the industry is sitting on over $350 billion of investment capital.
VR specializes in the lower middle market, which has accounted for 55% of the middle market deal flow for 2016 and 2017, up from 41% in 2015. This increase in deal flow is attributed to the fact that the credit crunch did not have as drastic an impact on the lower middle market, as smaller deals typically use less leverage. Adding to the trend toward smaller deal sizes is marked decreases in multiples and average debt percentage (37%) is sitting at its lowest level in more than a decade.
Deal-making in the lower middle market is fairly evenly distributed across industries and therefore VR’s range in expertise is wide spread to serve our clients.
Another trend developing is the acceleration of fundraising for lower middle-market investments. With funds showing increased awareness of this segment of the market, the future should be conducive with even more deal-making.
The value proposition VR brings to its clients, is helping to identify the window of opportunity in which to acquire or sell a business at a desired price. Our services address whether the overall market for buying or selling a company is favorable? How will a company’s recent performance affect price? Are our clients emotionally and financially ready to enter or exit a company?
With a heritage unchallenged in the privately held middle market, and on behalf of our team around the world, we look forward to working together on your next “big deal”.
Peter C. King