M&A Insight: Lower Mid Market

The M&A industry trades in data and insight. So, there's an element of irony in that general opinion is summized by a limited amount of available information.

Reading many articles in 2023 about the state of play in the M&A industry, and you will hear that high interest rates have made borrowing expensive, subsequently slowing the post-Covid surge in deal volumes and values.

While the picture painted isn't all doom and gloom, the information used in this reporting is often limited to knowledge of the biggest deals at the top end of the market.

What about the rest of the M&A markets?   

In a recent white paper offered by Finquest titled "The Next M&A Frontier: Navigating the Untapped Potential of the Lower Middle Market" there is a deeper dive into what is happening from both the purchasers and sellers perspective.

The lower mid market (£5M-£150M revenues) accounts for around 30 times more companies than the top end (£150M+ revenues).

Given the economic reasons impacting investments and borrowing, the focus for many purchasers and fund managers is to now look beyond the top 3 players in a sector and instead adopt a systematic 'buy-and-build' M&A strategy.

Within the white-paper a survey was carried out detailing buyer interest (number of approaches made), and a separate survey of seller interest (willingness to have a conversation with an acquirer). When overlaying the results, the companies with the highest number of approaches ($50-100M revenue range), were the least willing to engage in conversation. Instead it was the $20-50M revenue bracket of companies that were more open to entertaining the idea.

As sell-side advisors operating in the lower mid market, we've seen first-hand the increase in demand for companies in our demographic. Also, the variety of deal-types on offer gives our clients more control, making PE or PE-backed deals significantly more attractive than in previous years.

Another interesting takeaway from the white-paper on the buyer interest side is that there is still a high number of companies within each revenue bracket who have never been, or are rarely, approached. The belief is that 'relationships and prevailing data-driven strategies to source deals remain highly inefficient.'

In terms of location, within Europe it is highlighted that German companies were the least willing to engage in conversations with a buyer, possibly down to generally being better grounded financially and having succession plans in place well in advance.

So, with the M&A landscape constantly evolving, we always encourage companies operating in the lower mid market to engage in conversations and regularly review exit strategies.

Data may not always be publicly available or up-to-date, which can impact on how attractive or primed-for-acquisition a company may be.

Demand fluctuates, personal situations and buyer strategies are constantly changing, meaning your company could be a more attractive proposition compared with 12 months ago.

Tap into our market knowledge and insight to see how we can assist in your exit strategy planning. Get in touch today for an informal initial conversation.