Middle Market Runaway

M&A Market Events

The middle market is on fire. Valuations are high and going higher it seems. As the fiscal years from global financial crisis period move out of the historical frame, valuations for middle market companies have roared back. The valuation mania seems to have a lot to do with the cash coming off the sidelines and into the M&A game.

For many years, private equity investors and corporations have been sitting on huge amounts of dry powder. That cash now seems to be moving into the market, driving prices higher to the sheer delight of sellers. Unremarkable middle market companies with moderate historical growth can sell for 10 times EBITDA or higher. This seems to be happening at the same time that banks are more restrained in their activities. Overseen by the regulators, many bankers are not moving up in lockstep.

The non-bank lenders, including unitranche lenders and business development lenders, are stepping in to do the heavy lifting. It does seem a little like the good old days during the 2004 through 2007 time frame. Back then, some said, “I know the market is out of control and hope it soft as opposed to hard lands”. Perhaps, this is the natural byproduct of extraordinarily low interest rates over a very long time period. With low interest rates, things that produce cash such as middle market companies and businesses have more value because of their growth potential.

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