24 Sep Current M&A Trends in the Lower Mid-Market
Several key topics are influencing merger and acquisition (M&A) activity in the lower middle market sector this year. Lower mid-market refers to companies with enterprise values (EV) or revenues between $5 million and $100 million:
- Valuation Trends: While valuations have stabilized from their 2021 highs, they are still relatively high compared to historical averages. This offers sellers a good window for transactions, while buyers must be strategic about their acquisition targets. The current average valuation multiples for all industries in the lower-middle market hover around 7.6x EBITDA.
- Financing Conditions: Interest rates are expected to stabilize or decline, creating favorable conditions for deal-making. This, along with the availability of private equity capital (“dry powder”), supports continued M&A activity.
- Private Equity Caution: Private equity funds are becoming more cautious, performing deeper due diligence due to concerns about macroeconomic uncertainties and uneven company performance.
- Sector-Specific Hotspots: Technology, healthcare, energy/utilities, and life sciences remain popular sectors due to their growth potential, industry convergence, and innovation. Within technology, the adoption of AI and cloud computing are notable drivers.
- Aging Ownership and Regulatory Concerns: Many lower-middle-market businesses are owned by individuals nearing retirement age, increasing the supply of sellers. Additionally, concerns about regulatory shifts, particularly in an election year, motivate more sellers to enter the market.
Overall, while economic uncertainty is slowing some deal closures, a favorable financing environment and sectoral growth opportunities are maintaining cautious optimism for the remainder of 2024.
