Outlook for Middle Market Mergers and Acquisitions in 2016
2014 marked the resurgence of mergers & acquisitions, especially in the middle market. Since the recession, investors have been extremely cautious but that slump rebounded and that trend continued through a better part of 2015. While it may be too early to judge what the entire year will look like, yet it is safe to predict a relatively stable middle market and the race for mergers & acquisitions will become more competitive as a result.
Let us first look at a few cold facts, or numbers, and then we shall delve into the outlook for middle market mergers & acquisitions in 2016.
- 2014 and 2015 witnessed more than fifteen hundred deals in the middle market segment. Although 2015 fell short of 2014, the decline was unnoticeable. In the lower middle market segment where mergers & acquisitions are valued at anywhere from twenty five to a hundred million, 2015 recorded a tad less than five hundred deals. 2014 had recorded a tad more than five hundred. In the core middle market segment which marks deals from a hundred to five hundred million, mergers & acquisitions in 2015 clocked 774 as against 754 in 2014. But more money was pumped into the 754 deals in 2014 as compared to 774 in 2015. In the upper middle market that marks deals worth five hundred million to a billion, 2015 clocked 223 whereas 2014 had clocked 240.
The numbers clearly indicate that the middle market is relatively stable and that investors are more confident of mergers & acquisitions in this segment. However, there lies the problem as well. As more investors shun other markets and focus on the middle market, the race to mergers & acquisitions will get stiffer. It is likely that prices would go up and deals will become dearer which will naturally result in the narrowing of operating margins or net profit.
There is a silver lining in the outlook in the form of tech startups and various other industries which were erstwhile not in the radar of every investor. Also, those who are funding tech startups or acquiring relatively nascent companies are doing so with a very well defined, lucid and timed exit strategy. Not too long ago venture capitalists, angel investors or even companies acquiring smaller firms did not really plan an exit unless it was obviously necessary right from the start. Now, investors are seeing the churn, rather foreseeing it and that is what 2016 will continue to witness.