State of Midmarket M&A: Q1-Q3 2014 Update

State of Midmarket M&A: Q1-Q3 2014 Update

Executive Summary: Key Findings & Predictions

M&A is popularly associated with massive deals between Fortune 500 companies, because these are the transactions that most often make the news. In reality, most mergers and acquisitions take place in the midmarket, with deals valued at $500m or less. Midmarket M&A activity therefore counts as a critical indicator in the overall economic picture.

At the end of 2013 Capstone Strategic, a M&A consulting firm with over 20 years experience, conducted a survey of midmarket company owners and executives, to elicit their insights on mergers and acquisitions.  In October of this year, we conducted a follow-up survey. Our objective: to see how the first three quarters of 2014 matched expectations we learned of last year, and to indicate any new trends in midmarket M&A.

All questions were designed and analyzed by David Braun, the Founder and CEO of Capstone and author of Successful Acquisitions.

Key Findings

Growth in M&A: There has been an increase in M&A activity in the midmarket, despite continuing economic uncertainty.

• 60% engaged in M&A or external growth activities in 2014
• 44% are considering M&A activity in the last quarter of 2014

Overall Midmarket Growth: Moderate growth continues.

• 68% reported modest growth in 2014

Opportunities: Companies are very interested in exploring new markets.

• Increased focus on acquisition of new markets (up 11% from 2013)
•A total of 62% of respondents are interested in expanding into new markets.

Challenges: Scarce resources and difficult in finding companies to acquire.

• Greatest deterrent from M&A activity is a lack of time, money and people.
•28% of respondents report a lack of suitable companies to purchase.

Steady Growth in M&A

Overall, our perception is that the economy will continue to recover, and as it does, more midmarket companies will seize on the opportunities presented by external growth. We define external growth as any strategy that leverages a relationship with another company—such as acquisition, minority ownership, joint venture or strategic alliance. We see more companies recognizing the possibilities for accelerating their growth through these kind of relationships. However, many are still restricting themselves unnecessarily by considering only acquisitions of for-sale companies. In reality, external growth opportunities, including acquisition, are possible with almost any company, for the right equation.

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