Middle Market Strength
Since the recession, the middle market has shown strength, high levels of productivity, and continues to play an integral part in putting Americans back to work. As a growing part of the American economy, middle market companies have been expected to take advantage of their position in the market by expanding through strategic acquisitions and other types of mergers. These predictions appear to be coming to fruition, leading to indications that 2012 will continue to be a very active and robust year for the middle market.
Recent statistics released by an on-line database indicate that there are a number of trends currently characterizing the middle market of the M&A world, including:
- An increase in deal activity.
- The continuation of a trend that was present in 2011 towards
- The reestablishment of a trend towards
First quarter reports for 2012 revealed an over 21% increase in deal activity compared to 1Q 2011. In addition, there is evidence that when it comes to acquiring companies in the middle market, size does matter. Businesses in the $50-250 million value range are being purchased at record size premiums compared to those in the $10-50 million range.
Buyers also appear to be looking for businesses exhibiting quality financial performance. The larger the business,
the higher the quality premium buyers were willing to pay for above average margins and revenue growth. A 22% quality premium was average for businesses with a $50-100 million enterprise value, and that premium increased to 43% for businesses at the $100-250 million level.
Intriguing for Sellers and Buyers
These trends all indicate that the middle market should continue to see a substantial amount of M&A activity in 2012, making this a particularly intriguing and enticing time for both sellers and buyers. The trend towards size premiums indicates that buyers appear to be most interested in companies with total enterprise values on the upper end of the middle market, and sellers with these large businesses appear to be in a good position to get the best price for their companies. In addition, the re-establishment of the quality premium indicates that buyers are not just looking to grow by getting a great deal on weaker companies that had trouble weathering the recession, but are also interested in expanding through the acquisition of strong, robust companies, and are willing to pay for them. As a result, this may be a particularly rewarding time for owners who are considering selling their companies, and an alluring time for buyers because of the number and quality of businesses on the market.
Clayton Capital Partners is one of the nation's top independent investment banking firms for the middle market, as reported by Thomson Financial, Mergerstat, and Investment Dealers' Digest.
The reasons for our success are simple: We understand our clients' expectations and believe in exceeding them.