Despite Volatility, Middle Market Mergers and Acquisitions Continue to Thrive

The middle market is a crucial segment of the economy, comprising companies with annual revenues between $10 million and $1 billion. Despite the volatility of the global economy, middle market mergers and acquisitions (M&A) continue to thrive. In fact, according to a recent report by PitchBook, middle market M&A activity reached a record high in 2018, with over 3,000 deals completed.

One reason for this trend is the availability of capital. Private equity firms, family offices, and other investors are flush with cash and looking for opportunities to invest. This has led to increased competition for middle market companies, driving up valuations and making it a seller’s market.

Another factor driving middle market M&A activity is the desire for growth. Many middle market companies are looking to expand their operations, enter new markets, or acquire complementary businesses. M&A can be an effective way to achieve these goals, providing access to new customers, products, and technologies.

In addition, the current economic environment is favorable for M&A. Interest rates remain low, making it easier for companies to finance acquisitions. Tax reform has also created incentives for companies to repatriate cash held overseas, providing additional capital for M&A.

Despite these positive factors, there are also challenges to middle market M&A. One of the biggest is finding the right target. With increased competition for deals, it can be difficult to identify attractive acquisition candidates that are not already being pursued by other buyers.

Another challenge is due diligence. Middle market companies often have limited resources and may not have the same level of financial reporting and controls as larger companies. This can make it more difficult to assess the true value and risks associated with an acquisition.

Finally, integration can be a significant challenge in middle market M&A. Combining two companies with different cultures, systems, and processes can be complex and time-consuming. It requires careful planning and execution to ensure that the benefits of the acquisition are realized.

Despite these challenges, middle market M&A continues to be a vibrant and growing segment of the economy. With the right strategy and execution, companies can use M&A to achieve their growth objectives and create value for shareholders.

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• Source: Plato Data Intelligence.