Benchmark International

As a business owner, there will be a variety of possible reasons for the eventual exit from your company, whether it be health, retirement, competition or many more. A question we face more than any other as company exit specialists is “what is my company worth?”. Well, the facts are that the answer to this question is affected by a vast number of external influences which all play their part in determining the peaks and troughs within the M&A industry life cycle.

Historically, M&A industry life cycles generally span six or seven years and as a fairly volatile market, peaks and troughs tend to be separated by three or four years. The last industry peak was experienced in 2006/7 and the last trough being in 2009/10, which would suggest that the industry is due to peak again over the next year or so.

With the M&A industry life cycle suggesting that a peak is due, there are several other factors which are also strongly suggesting that the industry is set to experience increased levels of deal activity and high deal values. What is more, we feel that the industry is not just due to peak, we feel that the coming year or so could see historic levels of deals values.

The primary reasoning for our confidence regarding deal values is demand. Demand for mid-market companies is set to soar through 2013 and into 2014 due to a number of reasons, one being the huge levels of cash available to investors within the private equity industry. Since the collapse in confidence from 2010 onwards, private equity organizations have been reluctant to part with capital due to uncertain conditions. 2012 went some way to relieving the uncertainty surrounding the industry and the foundations are now firmly set for private equity investors to enter the market full throttle armed with record sums of capital.

Additionally, with interest rates remaining at record low levels corporate companies are also benefitting from readily available capital in order to fund their acquisitive growth strategies. Acquisitions are currently being favored over operational development when it comes to growth of companies as it is seen as more time and cost efficient to buy in another companies operations rather than further develop their own. Available cash coupled with the enhanced desire to grow through acquisitions and benefit on current favorable market conditions has caused a significant increase in demand for lower middle market companies.

The high levels of demand from both private equity and corporate acquirers is creating a competitive atmosphere which is currently driving deal values far above industry norms. With demand set to rise steadily through 2013 it is more than likely that we are due to experience a record year within the M&A market, particularly within the lower middle market.