A Mid-Year M&A Update

by Stan Bailey, Chairman

With the current level of domestic and global turmoil, business owners of Lower Middle Market Companies routinely ask two questions:

1. “What’s happening to business values?”

2. “Is it too late to sell my business?”

The answers are:

Global M&A deal markets are down 21% in the first half 2022, as international and domestic “big deals” have subsided;
Lower Middle Market (LMM) deals for companies of less than $50 million in sales are up 8% during this same period;
LMM Buyers and Sellers remain active on the M&A playing field amid the current turbulence as business performance fundamentals remain stable to improving;
Private equity and professional investors are flush with $1.3 trillion of “dry powder”, eager to deploy capital into “high quality” companies;
High quality companies with better performance fundamentals are in short supply;
Buyers are transacting deals at premium prices consistent with 2021 for high quality companies;
Selling companies’ track records during COVID are a good barometer for the ability to navigate the turbulent business cycle ahead;
“Old Economy” businesses – manufacturing, distribution, business services – remain the life blood of the Lower Middle Market and attractive to an abundance of buyers. New home construction-related businesses are adjusting in the higher interest rate environment by local market.
Professional investors are expanding their search efforts into non-traditional business sectors within healthcare, technology and business services; and
Inflation, staffing and supply chain challenges continue to be of primary importance to business owners. Owners appear less concerned about rising interest rates at this time since many companies deleveraged their balance sheets with PPP/EIDL funds.