Private Equity Roundtable: State of the Lower Middle Market

Roundtable Overview

During a recent virtual roundtable hosted by GF Data, SDR’s Scott Mitchell joined fellow M&A professionals to discuss the state of lower-middle market M&A and private capital markets. The roundtable consisted of 40+ professionals from the Rocky Mountain Region.

Advisory Panel Members:

- Private Equity Investors

- Investment Bankers

- M&A Accounting Professionals

- M&A Legal Firms


What Is Your Plan for the Next Chapter?

Have you been considering a sale, recapitalization, or financing to grow your business? If you are interested in exploring your options, our team of M&A professionals is here to help. Please contact Scott Mitchell at or call our offices at 720.221.9220.


Discussion Highlights

Valuation Multiples in the COVID Era

While the initial economic slowdown caused by COVID-19 sidelined many active transactions for a quarter or two, we have seen M&A activity (especially in the lower-middle market) recover in recent months. Beyond the bounce back in deal flow, there has been a notable increase in valuation multiples for companies that can prove their economic resilience during the pandemic.

While overall valuations lagged in 2Q20 & 3Q20, the availability of capital for private market transactions continues to drive multiples higher. The increasing demand for quality assets coupled with the amount available “dry powder” in the lower middle market is greatly outpacing the volume of strong acquisition targets hitting the open market. It’s Economics 101, when demand continues to rise while the supply of quality assets dwindles, prices rise.

LMM Transaction Activity Chart

Looking Forward

Among the event’s participants, the consensus is that there will be a surge in M&A activity in 2021. This is partially because aging business owners who were planning on selling, but not fully committed to doing so, before the pandemic are once again able to achieve fair and even above-market valuations. Many don’t want to chance a potential recession or face rising taxes during the current administration.

Although the credit markets slowed in Q2 & Q3-2020 for M&A financing, they are once again “open for business” and leverage multiples and interest rates for M&A transactions have largely returned to pre-pandemic levels.

Debt/EBITDA Multiples Chart

Additionally, large strategic buyers continue to lag behind private equity in terms of focusing on M&A activity as the economy continues to rebound from COVID-related setbacks. To the extent strategic buyers are pursuing M&A, many are currently targeting large “transformational” transactions. While the “transformational” trend has dampened activity in the lower middle market, we anticipate that strategic buyers will become more active in the back half of 2021, and once again target smaller acquisitions.

Overall, 2021 appears to be headed for a significant surge in deal activity at strong valuations.

Share This Story. Choose Your Platform!

Get Started
on Your
Next Chapter

Contact Us >