• Fred Silberstein

4 Crucial Trends to Look Out For in Middle-Market M&A

2021 has been a great year for M&A transactions due to the record-breaking deals witnessed earlier in the year. Here are some key trends to expect.



Investors are always on the lookout for great companies that can offer the maximum return on their investment. With several M&A deals occurring around the country, one would think that most strategic acquirers focus on big deals. After all, we have seen some record-setting M&A deals in the last year. This could, however, not be further from the truth.

Middle-market companies have become a better alternative for most private equity companies. They have lower valuations, better growth opportunities, and few barriers to entry. As a result, there has been increased competition in the middle-market segment. Businesses should understand some of the key trends in the middle-market segment if they wish to remain competitive.

Understanding the middle-market segment Firms operate in different market categories. These include the lower-middle market, the middle market, and the upper-middle market. Companies in the lower-middle market have annual revenues ranging from $5 million to $100 million while those in the middle market have revenues ranging from $100 million to $500 million.

Aside from the lower valuations in middle-market companies, the resilience of middle-market firms also makes them attractive for buyers. The recent coronavirus pandemic has shown that these companies are recession-resistant. Most of the firms in this segment have been able to withstand the economic effects of the coronavirus pandemic.

Companies in the middle market often offer essential services, such as heating, air conditioning, waste management, and cleaning services, among others. Such “old-fashioned” sectors have fewer risks and generate consistent cash flow.

4 key trends to watch out for in middle-market M&A Companies around the world continue to recover from the economic effects of the coronavirus pandemic. That said, there are four key trends you need to know regarding middle-market M&A. Here are some of the things that both buyers and sellers should watch out for in the next few months.

1. Business valuations of middle-market companies may increase 2021 has been a great year for M&A specifically because of some of the huge deals that occurred in the first half of the year. There has, however, been significant competition in the upper-middle market, making it difficult for most buyers to realize a significant return on investment. This has made the middle market a much more attractive option. Middle-market companies with valuations of less than $250 million have an average purchase price multiple of 7.3 EBITDA. This is the highest multiple that has been witnessed in history.

The increased competition will see middle-market companies’ valuations also increase in the near future. At the same time, many middle-market firms are growing and ready for investment. They offer great returns as some buyers can realize a 50% increase in the funds invested.

2. Increased appetite for middle-market firms due to the coronavirus pandemic The economic effect of the coronavirus pandemic has made the middle market an attractive option for buyers. Investors that often invest in large firms are now making a shift to much smaller businesses. One of the main reasons for this is that middle-market firms offer fewer risks. They also require little to no leverage.

In the past year, buyers saw that middle-market firms offering essential services managed to stay afloat. Some firms have even thrived during this period. This has made it an attractive option for buyers who still have the capital to deploy in M&A transactions.

3. Virtual deal-making is the norm One cannot understate the importance of relationships in an M&A deal. Buyers and sellers need to have great rapport if they wish to have a successful M&A outcome. This means face-to-face meetings are crucial if two parties wish to create a cordial relationship.

That said, the coronavirus pandemic has made it difficult for people to travel. Virtual solutions have been the norm over the recent past. Some of the substitutes include video conferencing when making the deal and video tours if a buyer wishes to know more about a firm.

4. More time to complete M&A deals Another trend arising from the effects of the coronavirus pandemic is that buyers and sellers now need more time to make deals. Most M&A deals would previously be completed in 6 to 9 months, but this has changed. Dealmakers now need more time to complete their deals.

One of the main reasons for long wait times during deal-making is the need for extra due diligence. Buyers are very concerned about the current economic climate and need to take more time to research potential acquisition targets. There have also been challenges with revenue growth for many firms, which is an important factor buyers must consider.

Financing M&A deals also took a back step due to concerns about the economic state of the country. In the first half of the year, buyers found it a bit difficult to get funding as most companies were saving up cash and restructuring their operations. However, private equity firms can now fund buyers due to improved economic conditions. This is expected to cut down the time it takes to complete deals, but it may take some time before this is realized.

Work with SF&P Advisors for successful M&A deals The coronavirus pandemic has been a game-changer in the M&A industry, leading to several changes in how dealmakers conduct transactions. Completing a successful deal takes time and companies need to invest in the right advisors to make sure their transaction is a success. Having the right advisors ensures that the interests of both the buyers and sellers are well represented.

SF&P Advisors has overseen the completion of many M&A deals and can help with your transaction. Simply contact us if you wish to have a quick consultation.