M&A TRENDS for Lower Middle Market Q3 2011

5 Dec

By Huxley Nixon

According to sources such as Merger Stat Review, Flashwire Monthly, GF Data, Capital IQ and others, transactions with an enterprise value between $25M and $250M, deal activity and valuations are UP slightly but uncertainty continues to hang over the market due to Euro Debt crisis and the paralysis in Washington to deal with the huge US deficit and the jobless recovery.

FACTS (as of SEP 30, 2011)

  1. ACTIVITY:   UP 2.25% (TTM  1,083 transaction vs 1,059 prior TTM)
  2. CAVEAT:  Deals between $10M to $25M are DOWN 17%  BUT those between $250M to $500M are UP 45%
  3. EBITDA Multiple:   6.4X – UP (deals with TEV to TTM EBITDA between $10M and $250M, source GF Data)
  4. Size PREMIUM gap greatest in years!
  5. HOT Sectors: Industrials 26.8%, Consumer (discretionary) 19.2% and Information Technology 22.6%.(closed Q3 deals)
  6. Huge CASH reserves by strategic buyers and Private Equity Groups that are eager to invest in and acquire quality companies.
  7. IMPROVING borrowing climate for larger transactions.

What does this mean for business owners considering a sale of part or all of their company but are scared this is a BAD time because they have NOT returned to their previous high water mark of pre recession days? 

Buyers willing to PAY UP for Companies with LOWER RISK profile!

  • Forget what you did four years ago, what did your company do the past 12 months?
  • Is there a CREDIBLE Growth story for foreseeable future?
  • Strong Management Team
  • Strong Financial controls and Operations systems.
  • Have a diversified customer base with stable revenues and EBITDA margins.

If revenues and EBITDA are up from the same 12 month period a year ago, your financial house is in order, and revenues are growing, you should be well positioned to take advantage of growth opportunities when the recovery occurs and attract MULTIPLE suitors.Companies that reach a certain scale usually have developed a strong middle management, have better financial systems and operational controls – thus in the eyes of a buyer and lender have LESS RISK! 

Would you like to take some Chips off the table but are NOT ready to RETIRE?

If your company is less than $100M in revenues a Leveraged Equity ReCap may be something you should consider.  See this link describing how this powerful structure might work for you.

 How READY is your Company for a Transaction?   

Are you positioned to attract multiple BUYERS in today’s market?  Click here to see how your company stacks up. 

Author: Huxley Nixon has been involved in M&A (mergers and acquisitions) for 35 years as a buyer, seller and intermediary.  He is founder of the M&A MARKETPLACE by CHC (www.mamarketplace.com) where the buyer pays all success fees and the process is only 120 days.  For owners of private companies considering a sale of part or all of their company – it provides a very quick, confidential and competitive alternative to current options less transparent and more disruptive for the owner.

DISCLAIMER:  Opinions and conclusions in this post are solely those of the author unless otherwise indicated.  This article is for general information purposes and is not intended to be a solicitation regarding any securities transaction and or investment relationship. For those desiring additional information please visit our website www.mamarketplace.com.

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