Risk averse buyers causing lower mid-market to lead M&A activity in 2014

Lower mid-market deals have been driving M&A activity through the first quarter of 2014, a trend that is yet to show signs of shifting. The primary reasoning behind this trend appears to be a matter of perceived risk.

Through daily discussions with buyers, our corporate finance team has established that buyers are increasingly shifting their focus towards multiple acquisitions of small to mid-sized companies rather than acquiring a single, larger opportunity, in order to spread the risk.

More buyers are seeking acquisitions in the lower mid-market than ever before and, as a result, competitiveness around deals in the market is driving values and multiples toward record levels.

It appears then that we are not the only ones noticing this shift in demand for acquisitions; in a recent article on M&A news site www.themiddlemarket.com, Robert Profusek of Jones Day commented on the trend: “Uncertainty will continue to cause most dealmakers to shy away from large transactions in 2014, but the middle-market will host plenty of M&A activity, driven by a strong deal financing environment and companies with an abundance of cash on hand.”

Coupling this with the enhanced availability of capital to finance acquisitions, also mentioned by Robert Profusek, it is apparent that the market environment is primed for mid-market acquisitions.

This is good news for lower mid-market business owners considering an exit as, with favorable conditions driving buyers towards the market, competition is increasing significantly resulting in greater values and multiples of profits being paid.

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