Now Is a Good Time to Buy or Sell a Middle-Market Company

Many strategic buyers who have been cautious over the last five years are now looking for the right company to complement their growth strategy. “M&A fundamentals are as sound as I’ve ever seen them,” says Joseph Durnford, managing director of J.D. Ford. “There is a large pool of potential middle-market targets. More capital is available for dealmaking than at any time in recent history.”

Private equity firms, he says, have the ability to raise almost unlimited amounts of capital and must deploy that capital to fuel their success. Although private equity multiples are generally lower than those paid by strategic buyers,  the number of private equity funds and assets under management continues to grow, with roughly $1.1 trillion in equity available.

Buyers are willing to pay higher multiples for companies with larger cash flow and a strong brand/market presence.

PE deals for U.S.-based companies are at a record high right now of 11.5x due to available and cheap debt, but the pace of deal making is slowing due to high valuations, with private equity frequently outbidding strategic buyers, according to Jeffrey Sasakura, senior vice president of JDF.


Baby boomer business owners are thinking about retirement and for many, their children don’t want the business, so there is pressure to find a strong successor from outside the family.

Buyers are searching for opportunities that will help them scale, mainly because productivity gains—after 6+ years of focusing on efficiency—are proving difficult to obtain.

In addition, increased financial services and healthcare regulations are beginning to impact other industries. Meanwhile, strong earnings growth has resulted in higher prices being paid, but fewer sellers in the market. The CEO Confidence Index has hit a record high of 68%, which generally leads to increased deal making.

CEOs should beware that deals are taking longer to complete, according to Durnford. Sixty percent of deals today are taking 10-14 weeks from letter of intent to completion, as buyer diligence becomes more rigorous.

There are three key areas behind the increase in mid-market deals:

  1. A search for yield
  2. The cost and risk of dealing with regulation
  3. The continued globalization of commerce

The regulatory environment has forced hundreds of community banks and other independent operators to consolidate with larger firms, leading to a more difficult environment for smaller companies that have relied on the one-on-one relationship.

CEOs are also holding out for buyers committed to put more equity into growing the business, rather than pay down debt and sell it five years later. “So we’re seeing this competition to search for yields,” Durnford says.

There is no fear of recession on the near-term horizon, he adds, which makes this the best time to buy or sell.

To find out more about the current M&A market for mid-market companies, check out Chief Executive Group’s recent webinar with J.D. Ford & Company.

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