Q3 Middle Market M&A Snapshot

  • By: Patrick Nolan

    Each quarter our team reviews M&A deal activity and valuations for the Middle Market, then disseminates the major trends we are seeing that are relevant to sellers and buyers of businesses.

    Here are our key takeaways for the third quarter of 2017. We’ve kept it brief this quarter as you’ve heard this story before, it continues to be a good market for sellers. Please contact me if you have any questions about the points below.
  • Takeaway #1: Although deal counts by year-end 2017 aren’t expected to reach 2015 and 2016 levels, valuation multiples are at record highs.

    Private equity and strategic buyers are generously rewarding sellers of quality businesses with both valuation and flexibility on terms. Premium assets are selling for record premium multiples. Private equity buyers are pricing many of these deals perfectly, meaning there is little to no room for error on execution of go-forward strategy.

    Average companies are still getting sold in competitive processes, but we have seen more pricing discipline with private equity groups on non-prime businesses.

  • Takeaway #2: Decreased Middle Market M&A activity continues to provide significant tailwinds for sellers.

    The current demand for acquisitions far exceeds the supply of assets available for sale, thus driving record valuations.  2017 will be a record fund-raising year for private equity at a time when quality family and founder owned businesses available for sale seems to be declining.  The excess supply of capital will continue to provide for favorable conditions for sellers.

    As seen in the graph below, third quarter of 2017 year-to-date Median Enterprise Value/EBITDA multiples are at a record high of 7.1x compared to the 7-year average of 6.3x. This graph includes strategic and financial deals with a total transaction value range of $10 million – $250 million.


    Middle Market M&A Transaction Volume and Valuation

    q3 chart

  • Takeaway #3: The positive market sentiment, coupled with relatively few organic growth opportunities, have led to an extremely healthy appetite for acquisition-based growth for strategic buyers.

    Strategic buyers have demonstrated a preference to grow via acquisition with organic growth posing a challenge in many industries. This dynamic is playing out even among smaller companies viewing acquisition strategies as their primary means to grow and deploy capital.

    Key themes among strategic buyers continue to be customer and talent acquisition, product or service line diversification, industry roll-ups and geographic expansion.

    Please contact me with any questions you may have about your plans for the rest of 2017 and into 2018.

    market assessment

    Sources: Pitchbook, ThomsonOne