Strategic buyers and private equity investors look to the middle market in 2018.
Building on 2017 activity, all signs point to robust activity for middle market deals in 2018. Compared to 2016, average deal size in 2017 decreased by 16% while deal volume increased by 14% in the US. Growing interest in the middle market comes both from strategic acquirers and private equity.
According to our research, State of Middle Market M&A 2018, middle market executives are eager to execute acquisitions in 2018. 46% are more than 50% likely or 100% certain to pursue deals in 2018, compared to 35% in 2017. Another survey of middle market executives reported similar findings. In it, about 75% of middle market CEOs reported they are currently involved in or are open to acquisitions.
This renewed interested in deals may be due to the fact that middle market M&A dropped in 2016 and is just beginning to recover. Looking at data from past reports, in 2015 50% of middle market executives executed deals while in 2016 and 2017, just 43% and 44% pursued M&A, respectively. After waiting on the sidelines, executives are ready to take action.
External growth – acquisitions, joint-ventures, strategic alliances, minority investments, and majority acquisitions – can help a company grow rapidly by entering into a new market, augmenting capabilities and technologies, or bringing on talented employees. 60% of middle market companies say inorganic growth is an important part of their growth strategy.
On the private equity side, middle market activity is outpacing the overall PE industry in the US. The number of middle market deals in 2017 increased 9%, while overall PE deals decreased 9% when compared to 2016 activity.