After strong growth in 2014 and 2015, mergers and acquisition activity for private equity firms in the middle market decreased in 20161. According to PitchBook, private equity middle-market M&A activity (defined as transactions from $25 million to $1 billion) decreased 14.4% to 1,908 transactions while total deal value decreased 12.0% to $367 billion. PitchBook attributed a portion of the decline to increased competition from strategic purchasers. With equity markets near record highs, public company buyers have substantial capital available to drive growth by acquisitions.
While overall middle-market PE transactions declined, activity in the lower-middle-market (defined as transactions with invested capital ranging from $25 million to $100 million) still exhibited solid growth. Total private equity deal value in this sector increased from $30 billion in 2015 to $36 billion in 2016. As competition with strategic buyers has increased for larger targets, private equity firms have moved down into the lower-middle-market. The movement of larger private equity firms to the lower-middle-market has also been a contributor to the strong valuations in this space. Additionally, PE portfolio companies are looking to add on acquisitions to boost value and drive growth.
Access PitchBook’s full report
We expect 2017 to be a strong year for merger and acquisition activity. Company valuations are high and private equity firms still hold a significant amount of capital that they will look to put to use. Business owners that are contemplating a sale should take steps now to prepare for an acquisition. With high valuations, small issues during diligence can create significant, deal-breaking problems. RubinBrown can work with sellers to identify those issues before owners begin the sale process. Identifying these issues early can help lead to a successful transaction.
If you would like to learn more about the state of the M&A market and our expectations, RubinBrown's Mergers and Acquisitions Services Group advisors would be pleased to speak with you.
Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.
All Mergers & Acquisitions News Mergers & Acquisitions Services Overview
1 PitchBook 2016 Annual US PE Middle Market Report