For several years, Private Equity firms have been slowly shifting their focus toward sub-$50 million acquisition opportunities. These smaller acquisitions offer bolt-on opportunities for firms to integrate into their current portfolios, and also represent reduced risk for firms still wary of over exposing themselves following the uncertainty of the past few years.
Bolt-on acquisitions have become so popular for Private Equity firms that they equated to 61% of all transactions in 2014. Their appeal, however, is not restricted to financial acquirers. Increasingly, large corporates are favouring lower scale acquisitions to satisfy growth strategies.
Such acquisitions offer many benefits over other growth methods, being a more cost and time-effective method than organic growth, whilst avoiding the exposure and risk associated with larger acquisitions. Additionally, smaller firms typically offer greater innovation and flexibility, characteristics often lacking in larger concerns.
According to the Wall Street Journal, more than 70% of the acquisitions made by the most acquisitive corporate acquirers were valued at less than $50 million. With both corporate and financial acquirers converging on the lower mid-market, the one faction truly benefitting from this trend is business owners operating in this space.
As demand grows and competition intensifies for strong performing companies, business owners looking to sell is likely to benefit. Values paid for mid-market companies surpassed pre-recession levels in 2014, and, with an improving economic landscape, heightened demand will likely see a surge in values.