Is The Middle Market M&A Recovery Real?

April 15, 2015

The industry wide theme for 2015 M&A seems to be ‘recovery’.  There have been countless headlines touting the full recovery of domestic M&A (some of which have been authored by us).  While there is plenty of data to support this claim, particularly in specific hot spots of activity, the middle market is reaping very little benefit from this recovery.  The middle market can be defined in many ways – some say transactions under 200 million dollars, some say 500 million dollars and below. The reality is there is no true widely accepted definition for middle market M&A as it relates to deal size. For simplicity sake, lets use the 200 MD benchmark as our middle market ceiling for this post.

It is common knowledge that the middle market makes up the lion’s share of transactional count in the entire domestic M&A space.  However, as shown below, this huge transactional base only accounts for 21% of total value in 2014.  Look further back at the data and you can see that aggregate value as a percent of total value in the broader domestic M&A industry has shrunk significantly over the last five years.

Untitled

The reality is, the recovery has been almost entirely influenced by transactions with values of more than 1 billion. The graph below represents to total volume of deal value in millions.  The flat blue section represents the middle market.  The red and green graph areas are deals beyond the classification of middle market.  This clearly supports the arguments that while M&A is recovering, the recovery is beyond most transactions supported by middle market bankers and M&A advisors.

Untitled

So, unless you are doing deals beyond the scope of the middle market as defined here, you probably have not been feeling much of a recovery.  We believe the middle market will still continue to recover very slowly.  However, considering the fact that the number of M&A firms in the U.S. has grown by significantly in the last 6 years, each individual M&A firm will be competing with more firms at a rate that far exceeds growth of transaction opportunities in the middle market.