PitchBook is a leading research organization that tracks merger and acquisition trends, focusing largely on the key segment of the industry where the vast majority of deals are sized, the lower middle-market (deals valued below $500 million are generally defined as being in the middle-market, those below $100 million are usually lower middle-market).
Based on their analysis, this latter segment of the M&A market still remains a “seller’s market,” especially for well run, profitable, growing companies. This is how PitchBook describes the situation in a recent article:
It's clear that continued competition for deals and sustained high prices for quality companies is helping elevate transaction multiples and, consequently, overall deal value even at the lowest ends of the middle market…
The lower reaches of the middle market are quite popular nowadays. Since private equity buyout shops are sourcing so widely, and, moreover, are still firmly staying away from the mega-buyouts of old, it’s more likely than not that a shrunken supply of worthwhile targets is contributing to the slowing of the buyout cycle. The question then is how much the buyout cycle may slow by, and how long that will take.
As long as the cost of borrowing remains low and PE capital overhang so bulky, it really does come down to a matter of supply. Accordingly, the slowing of the cycle still has some ways to go, as a fair degree of consolidation among small-to-medium businesses in certain sectors, either due to generational wealth transfers or industry cycles, is still ongoing—generating opportunities for financial sponsors—in which the quality of the company in question becomes the primary obstacle.
According to Pitchbook, the demand for quality lower middle-market companies remains robust and should continue to be so for quite some time. Now the key to this analysis is the word “quality.” As with the definition of beauty, you know it when you see it. But generally speaking, a quality company usually has many of the following characteristics:
If you have these features in your business, then it may command a premium value in today’s market, because what buyers tell us regularly is the one thing they lack in today’s market is a base of well-run companies to target:
The common theme we hear from buyers is this: We have plenty of capital to invest, what we lack is time to spend reviewing too many targets that are not relevant to our needs as platform or add-on companies. If you have one (or more) of the features listed above, it would behoove you to re-examine the timing of your exit plans.
Currently we are in the midst of a seller’s market in the lower middle segment. Fortunately, post-election, it is clear that changes are coming that may positively impact the financial markets. The results of November 8 caught many M&A professionals by surprise and it is now clear that the business environment going forward will be positive as it relates to M&A activity.
If you are considering an exit in the next 18-24 months, I recommend that you reach out to an M&A advisor to guide you through the pending few months. If you have not spoken to an M&A professional, the Generational Group is here to help. Our firm is comprised of the leading M&A professionals in the lower middle-market. In fact, no company has closed more deals in this niche than we have over the past several years, according to Thomson Reuters, a research organization that tracks deal closings.
For more information about our services and how you may benefit from them, call me at 972-232-1125 or send me an email at firstname.lastname@example.org. For additional information about our services, use the following links:
By Carl Doerksen, Director of Corporate Development at Generational Equity.
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We thank you Eric and Generational Equity making our dream come true.Larry Moore, Owner, A Company Portable Restrooms
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Terry D. Wickman, President, Keytroller
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.Robert Evans, President and CEO of Mealtracker Dietary Software
I must say that I have never worked with a more driven, competent and focused individual as Don Ho.Jay Dinnison, Owner of Sharpe Mixers
Tom Staszak is one of the most professional people I have dealt with in my last forty years of business. You’ve got a great group of people and you have built a truly professional organization.Michael J Polarek, President, Paragon Packaging
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).Bil MacLeslie, CEO, ipHouse
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.Bil MacLeslie, CEO, ipHouse
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.Robert Evans, President and CEO of Mealtracker Dietary Software
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The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.Andy Graham, Vice President, Modern Heating & Plumbing
We are extremely pleased with the way Generational Equity handled the sale of our company. Your associates, Tom and Chris, did an outstanding job of getting us (me) through the process.Michael J Polarek, President, Paragon Packaging
Thanks again Phil and feel free to have a future client call me if they would like a referral. You are a true professional!Andy Graham, Vice President, Modern Heating & Plumbing
Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.Pete L.
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Bruce and I wanted to take this opportunity to thank Generational Equity for assigning Musa Jagne to our transaction. In Bruce’s words, “Musa did one hell of a job for us!”Karen S. Williams, CFO, BW Manufacturing
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.Larry Moore, Owner, A Company Portable Restrooms
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.Terry D. Wickman, President, Keytroller
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.Ralph Noblin, President of Noblin & Associates
Generational Equity’s assistance was invaluable in compiling and marketing our business.Bil MacLeslie, CEO, ipHouse
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.Jay Dinnison, Owner of Sharpe Mixers
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