Middle Market Mergers & Acquisitions: Looking Ahead in 2020

2019 was a year of ups and downs for middle-market mergers & acquisitions (M&A). After a slow start, there was a rally in later quarters leaving deal makers feeling positive for 2020. While the pending elections and overall political climate has some business owners feeling uncertain, indicators show that there is plenty of opportunity for growth in middle-market M&A this year.

Here are a few key insights from this past year, and what we think they mean going forward:

Overall deal value has increased 

While overall deal counts may have been lower in 2019 as compared to 2018, the value of each deal has increased. According to PWC’s recent report, Q4 and full-year 2019 update.

“US deal volume in the fourth quarter of 2019 was down 15% from Q3. But deal value increased 23% to more than $407.5 billion, which also topped Q4 2018.”

As further proof of increased deal size, the PitchBook US PE Middle Market Report concluded that “One sign of elevated deal-making activity is the increasing median middle-market deal size—which has risen to $205.0 million through 3Q 2019—despite add-ons, which tend to be smaller than non-add-ons, having grown further as a proportion of all deal flow.” This demonstrates that buyers are not only out there but are willing to pay top dollar for quality companies.

Two areas to watch: healthcare & life sciences and telecom

In Deloitte’s State of the Deal, M&A Trends 2019, their survey of 1,000 executives at corporations and private equity firms found that 61% of respondents projected growth in transaction size for the healthcare and life sciences industry and 73% projected growth for technology, media, and telecommunications. For companies in these industries, now is the time to consider selling. Proof in point, in 2019, Liberty Ridge Advisors managed the acquisitions of Teknon Corporation by LINX and Beatty Marketing & Sales by Aspen Surgical Products. These deals not only increased the value of the organizations involved but also opened the door for further innovation and market access. For example, the Teknon merger created a combined $140 million company, as well as enabled LINX to better serve their customer base.

“This purchase by LINX brings together two market leaders in complementary geographies that will be able to provide our nationwide clients with expanded service reach,” LINX CEO Erik Isernhagen said. “Fortune 100 clients in the network space have an insatiable appetite to deliver solutions at scale, especially in the mission-critical data center market.  This acquisition enhances our ability to deliver a best-in-class client experience with a more robust national footprint.”

There remains plenty of opportunity for organizations in other industries, and having the right M&A advisor on your side is crucial for optimizing transaction value and certainty of close.

Overall outlook for 2020 is positive 

While 2019 started out slow, the PitchBook US PE Middle Market Report found the M&A index recovered, showing “US-sponsored middle-market LBOs and add-ons have been the main driver of US-sponsored middle-market loan volume at 67% of total volume through 3Q 2019 versus 57% in 2018.”  

Despite uncertainty around pending elections, Deloitte’s 2020 M&A trend report shows that 63% of respondents feel that transaction activity will increase somewhat or significantly in 2020. 

What does this mean for companies looking to sell this year?

We think this next year will be one of growth for middle-market M&A and will bring many opportunities for business owners looking to sell their organization in the coming year. Regardless of the overall climate of the market, it is in the best interest of any business owner to have a trusted and knowledgeable M&A advisor to help navigate the sale of their business to ensure the best deal at the best time.

For more information about this transaction, please contact the Liberty Ridge Advisors deal team:

Michael Bennett
Managing Partner
mbennett@libertyra.com
(206) 422-0102

Leif Johnson
Managing Partner
ljohnson@libertyra.com
(206) 683-3814

About Liberty Ridge Advisors

Liberty Ridge Advisors provides merger and acquisition advisory services for Pacific Northwest privately held businesses including capital transactions, mergers, acquisitions and recapitalizations. Liberty Ridge Advisors offers concentrated experience and expertise in key industries including food products, aerospace, building materials and construction, general manufacturing and distribution, wine, and business and financial services. For more information about Liberty Ridge Advisors please visit our website at www.libertyra.com.   

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Contact: Michael Bennett, Managing Partner, Liberty Ridge Advisors, LLC
Email: mbennett@libertyra.com
Phone: (206) 422-0102