M&A Market: Who’s on the Dance Floor?

Understanding the types of buyers active in the market is crucial for navigating today’s M&A landscape. Yesterday, ProVisors' Silicon Valley M&A group hosted Kip Wallen from SRS Acquiom, who shared insights from the 2024 Deal Terms Study. For those unfamiliar, SRS Acquiom provides valuable data on the M&A market, with a special focus on legal terms and overall trends. One of the key topics Kip emphasized was buyer activity across different segments of the market. Here are some highlights:

- Private Equity (PE) Direct M&A: Platform acquisitions by PE firms have remained relatively steady as a percentage of total deals since 2016, typically accounting for 12-14% of transactions. The only notable dip occurred in 2019 when this figure dropped to 10%.

- Private Company Acquisitions: This segment, whether driven by PE-backed portfolio companies or non-PE buyers, has shown more volatility. The percentage of completed deals has ranged from 31-42% over the past few years.

- 2022 vs. 2023 Trends: In 2022, PE-backed buyers closed 26% of deals, while non-PE-backed private companies accounted for 14%. Interestingly, this flipped in 2023, with portfolio companies completing just 14% of deals, while non-PE-backed companies took the lead with 22%.

So, what does this mean for those of us in the lower middle market?

1. Add-On Deals Dominate: The volume of add-on transactions continues to surpass that of platform acquisitions. As I’ve discussed before, add-ons often command higher multiples as well.

2. Non-PE-Sponsored Buyers on the Rise: Recently, non-PE-backed strategic buyers have been more active in the market than their PE-backed counterparts, a trend worth noting as you evaluate potential buyers.

In today’s evolving M&A environment, keeping an eye on who’s on the "dance floor" can provide a competitive edge when planning your next move.