The lower middle market is a highly dynamic and active segment of the M&A landscape, characterized by companies with enterprise values up to $100 million. In early 2023, several key trends appear to shape the lower middle market M & A landscape.
Continued Interest from Private Equity Firms: Private equity firms remain active in the lower middle market in 2023, seeking to invest in companies with solid growth potential and attractive valuations. As interest rates remain low and investors continue to seek yield, private equity firms are likely to remain a significant source of capital for lower middle market companies.
Increasing Importance of Niche Markets: As competition in traditional industries intensifies, companies seek growth opportunities in more specialized areas, such as healthcare, fintech, and clean energy. This trend creates opportunities for smaller, specialized companies offering unique products or services.
Digital Transformation: With the proliferation of digital platforms, artificial intelligence, and machine learning, identifying and evaluating potential targets has become more efficient and data-driven. This trend is expected to continue, enabling dealmakers better to understand the underlying value and potential of target companies.
Consolidation in Fragmented Industries: Fragmented industries, such as healthcare and technology, are expected to see increased consolidation as companies look to build scale and gain market share. This trend creates opportunities for lower-middle market companies that offer innovative products or services.
Increased Cross-Border Activity: As the global economy becomes increasingly interconnected, cross-border M&A activity is expected to increase by the end of 2023. This trend creates opportunities for lower-middle market companies to expand their operations and access new markets.
As companies look for opportunities to consolidate or expand their operations, they must stay attuned to these trends to succeed in the dynamic and rapidly evolving lower middle market. Understanding where your company stands in a competitive and changing field – and how different buyer-type motivations and perspectives are changing – will be essential to successful outcomes for those seeking successful exits in this market.
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Benchmark International is a global M&A firm that provides business owners with creative, value-maximizing solutions for growing and exiting their businesses. Benchmark International has handled over $10 billion in transaction value across various industries from offices across the world. With decades of M&A experience, Benchmark International’s transaction teams have assisted business owners with achieving their objectives and ensuring the continued growth of their businesses. The firm has also been named the Investment Banking Firm of the Year by The M&A Advisor and the Global M&A Network as well as the #1 Sell-side Exclusive M&A Advisor in the World by Pitchbook’s Global League Tables.