Five reasons behind the mid-market M&A boom

Whilst discussing the state of the current M&A mid-market with business owners, the question arising most frequently is usually “is now the right time?”

Well, right now, the answer is an unequivocal “yes.”

The M&A industry continues to grow year on year and the mid-market is seemingly benefitting more than any other industry segment, as demand heightens for SME acquisitions.

Jones Day partner, Andrew Sherman, recently stated in Forbes that “middle-market M&A is up 30% this year”, a trend he expects to continue.

So what are the underlying reasons behind the mid-market M&A boom? We’ve compiled a list of five reasons we believe most strongly affect the current market.

Private equity inactivity – with uncertainly and low confidence affecting market activity during the global economic downturn, private equity investors decided to sit on their cash until confidence returned. Now this has come to pass, and with activity levels growing significantly, private equity buyers are now returning backed by huge sums of cash and heightened pressure to invest following low levels of activity.

Public company cash stockpiles – during the recession, large companies decided to simply sit on their growing cash stockpiles until a time of greater certainty. Following renewed confidence, large companies with deep pockets are now actively seeking acquisitions, with substantial multiples paid for the right opportunity.

Rising shareholder pressure – as a result of public company inactivity relating to growth via investment during the economic downturn, shareholders became frustrated with companies passing on opportunities for growth. Shareholders have now become increasingly active in applying pressure on companies to invest.

Baby boomer retirees – in 2008, leading-edge baby boomers turned 62, and, in the USA, every minute that passes sees another baby boomer turn 60 – an astounding statistic. By 2030, 70 million US citizens will be 65+, 25% of the overall country’s population.

With a huge percentage of mid-market business owners occupying this demographic it’s clear that a huge influx of businesses are poised for sale as their owners seek retirement.

The increasing supply of businesses is appeasing the increasing demand and, as a result, activity is beginning to rise.

Reluctance of the ‘next in line’ business owner – the once traditional process of passing control of a business to the next generation of family is seemingly becoming less and less common. Although the reasons for this trend are unclear, it is becoming obvious that whilst the younger generation has the entrepreneurial spirit, the motivation to carry on in their families’ footsteps is fading. As such, more and more businesses now bypass the family line and are placed on the open market – a trend that promises to increase.

All these factors affect mid-market M&A activity in terms of both demand and supply of companies, and will likely do so for some time.

What will change, however, will be the multiples paid for companies, as the supply will inevitably fall. Demographical trends such as the increasing number of baby boomer retirees will significantly affect the market place and business owners considering a sale in the coming years would be well advised to do so sooner rather than later.

Demand is currently approaching pre-recession levels and with more and more businesses being placed on the market, it is clear that NOW is the time to sell.


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