What are the economic factors influencing the lower middle M&A market?
Based on the overall transaction activity, there is imbalance in the M&A market, with demand for companies getting ahead of supply. Slowing activity and business owners deferring the sale of their businesses is due to concerns and uncertainty about valuation, reinvestment of sale proceeds, and the future tax environment.
M&A landscape has been impacted by uncertainty, due to factors like a tepid global economy marred by a lack of confidence in the Eurozone, US economic issues, and slowing growth in emerging markets.
How has the recent election in the US or the impending fiscal cliff influenced M&A?
Post-election, there has been a flood of motivated sellers eager to complete their transactions prior to the expiration of the Bush Tax Cuts. Business owners who were on the fence about selling are now driven to sell, as many believe that taxes are headed in an upward direction.
For many business owners of a certain age, >60 years, the election outcome and fiscal cliff have become somewhat of a final straw in terms of deciding to sell their businesses. Many owners believe that the cumulative effect of this economic realignment will create another recession, which they have no interest in participating in. Selling is a better alternative for them than continuing to own their businesses. We expect these forces will create a large uptrend in M&A activity in the middle market.
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