The middle market M&A process of today is almost unrecognizable when compared against the middle market M&A process of ten or 15 years ago. M&A deal flow in the middle market in 2017 and already in 2018 reflects the strongest activity in more than a decade—a trend driven by the record-high availability of financial capital and the record-low weighted average cost of capital.
In a recent analysis, GF Data finds that the “average valuations on private middle-market transactions surging into record territory over the course of this year,” adding that multiples have averaged 7.1x Trailing Twelve Months Adjusted EBITDA versus 6.2x in the ten years spanning 2003-2012.
The deals have also become significantly more complex. This is the result of numerous variables, most especially the proliferation of technology in an array of industries, increased globalization, new changes to the U.S. tax code, and aging Baby Boomer owners looking to exit their businesses.
“Deals were simpler and potential buyers were the usual suspects in the obvious industries, whereas very little today is simple, usual or obvious,” said Christopher Helmrath, managing director of SC&H Capital.
Many of these changes are shouldered by the seller. For some, the best buyers of companies now originate different geographies and industries that aren’t easily identified, let alone discerned. For others, ensuring the long-term wellbeing of their employees is as important as realizing a premium sale price for their business. Therefore, neither the conventional buyer nor even the highest bidder is necessarily the preferred buyer—a reality that requires today’s seller to adopt a nuanced, tailored approach to M&A.
Despite these changes, however, owners who believe that they can perform a do-it-yourself approach to M&A—transactions executed without a lead sell-side financial advisor and with only limited assistance from legal, tax and accounting counsel—still exists. “As recently as a decade ago, you could go it alone and still have reasonable expectations of a successful transaction, but the odds today are prohibitively unfavorable,” said Helmrath. “The buyers of middle market businesses are far more global and fractured—and the possible regulations are ever changing—for the significant majority of companies to walk that tightrope alone.”
Among a complex market comes the need for counsel and navigation through the necessary steps to determine your succession strategy. That is where SC&H Capital comes in. We pride ourselves on our unique process to meet the objectives of the seller.
The following piece provides a deeper dive into our M&A process and how we take the time to really focus on not just a transaction, but the required planning, understanding, and positioning of our clients’ businesses. Our M&A process is what has truly made SC&H Capital, and each of the clients we represent, successful in achieving their objectives.
