Mid-Year Update: Middle Market M&A Takeaways and Trends


With the first half of 2018 in the rear view, we have summarized our observations from our daily conversations with middle market sellers and buyers of businesses. Overall, middle market valuations continue to be strong, but deal volume has decelerated as the M&A market slightly slows.

Here are our 3 key trends:

#1: IT IS A SELLER’S MARKET FOR OWNERS OF HIGH QUALITY COMPANIES

Like the current real estate environment in many U.S. cities, there is a lack of high quality middle market businesses for sale. The shortage of suitable companies for sale has slowed deal volume in early 2018. Owners of successful companies are in high demand from buyers, especially private equity groups. The average EBITDA multiple paid by private equity groups has increased from 6.9x in 2016 to as high as 8.1x at the end of 2017.

EBITDA Multiples for Middle Market* Companies 2011-2017

*Middle market defined as total Transaction Value: $10MM – $250MM

#2: BUYERS OF BUSINESSES ARE LOOKING INTO NEW SECTORS FOR QUALITY COMPANIES

Private equity groups are tapping into new and previously quiet markets in pursuit of quality middle market companies. They are interested in quality companies in a wide variety of industries, and are gaining more diversity of industries in their portfolio of companies. As a result, the preparation and positioning of a business for sale is more important than ever for owners in all industries and niches.

#3: M&A ACTIVITY STAYS STRONG INTO THE SECOND HALF OF 2018

The U.S. and global economy is robust going into the second half of 2018. Companies who were waiting for tax reform to pass now have clarification on the new policy and how it will affect their business. Lower tax rates mean greater cash flows, thus higher valuations for business owners. Middle market business owners are reaching retirement age and are getting serious about reviewing their exit opportunities and succession plans while business valuations remain high.

Sources: Pitchbook, GF Data resources, ThomsonOne, CapitalIQ

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Nolan & Associates’ commonly owned affiliate, Middle Market Transactions, Inc. (MMTI), is but one of a very few FINRA licensed broker dealers serving business owners in the middle market.

Securities offered through Middle Market Transactions, Inc. Member: FINRA/SIPC

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