Technology is transforming middle-market M&A


Financier Worldwide Magazine

June 2015 Issue

June 2015 Issue

The megadeals get all the headlines, but the core of the M&A market worldwide is the middle-market. This is one of the largest financial markets in the world, yet it retains a level of level of inefficiency not found in the publically traded securities markets. There is no published bid and ask for small, closely held entrepreneurial companies. Over the next 10 years, this market will see a great deal of activity. The oldest Baby Boomers are now approaching 70 and they control a substantial portion of the entrepreneurial wealth in the developed world. In America alone, up to $10 trillion of private wealth will change hands in the next decade as the Baby Boomer business owners retire. Are today’s market mechanisms up to the task?

Back in the mid-1980s, middle-market M&A was truly a craft trade. The then nascent world of private equity had yet to consider the middle-market as a place of interest. Good companies sold at five times EBITDA and great companies sold at six times or perhaps a bit more. Fast forward to today; hundreds of well-funded private equity firms and strategic buyers compete aggressively for every deal. At the higher end of the middle market valuations of 10 times EBITDA or more are common. Yet the industry of professionals that supports this activity bears many similarities to the craft trade of years past. That is beginning to change – and to change fast.

Success in middle-market M&A requires a combination of skills incorporating an understanding of accounting, finance, law, psychology and most of all sales and marketing. For a seller to achieve the best results a marketing process is required in order to identify the best buyer for the particular company and to create a competitive environment for the deal. To be successful, such a process entails a number of steps typically provided by an M&A intermediary: (i) valuation of the seller; (ii) due diligence and preparation of sales materials; (iii) creating a robust target list of prospective buyers; (iv) getting the attention of the prospects; (v) sharing information about the company; (vi) meetings between management and the prospective buyers; (vii) buyer due diligence; and (viii) negotiation and closing.

These steps can be very time consuming, requiring substantial time and attention from the seller and its professional advisers. In a world where time to market has become the key competitive factor in industry after industry, middle-market M&A has often been a laggard. Technology is disrupting many industries, ranging from newspapers to taxicabs, formerly resistant to change. M&A advisory is no exception. Bright young entrepreneurs are working hard to disaggregate every aspect of the M&A process. A number of firms, such as CapTarget, have sprung up in recent years to provide M&A advisers with outsourced research support. For a fee, an adviser can obtain professional assistance in writing the book, developing the target list and valuing the target company. They also offer these services directly to the adviser’s prospective clients in private equity and the corporate world.

Both the quantity and quality of information resources available to the adviser have increased exponentially. When we started in the business, there was no internet. We were astounded when D&B offered access to information about tens of thousands of middle market companies via a CD-ROM delivered quarterly. Today Capital IQ, MergerMarket and Pitchbook offer instant access to every aspect of the transaction world and detailed information about hundreds of thousands of companies. While private company financial data is still hard to find, these services make it quick and easy to build a target list and to compare a client’s financial metrics with those of similar public companies.

Once a process is underway, one of the most time consuming aspects is communicating with prospective buyers. Networking technology is changing the playing field here as well. Firms like Axial and DealNexus aggregate both transaction opportunities and prospective buyers and investors in a centralised marketplace.

In a global market, the right buyer could be anywhere in the world. Video meetings can be used to accelerate the process and eliminate travel expense. Virtual data room providers like Intralinks and Firmex enable information to be shared in a secure virtual environment using easily accessible SaaS based tools.

This is only a sampling, and many new tools are in the works. In the future, information will be readily available to everyone. The winners in the game of M&A will be those that can harness the available information tools to make the process more efficient and most of all faster. Speed will become one of the most important differentiators. By using best of breed technology, top advisers will be able to focus their energy on what they do best: advising, negotiating and making deals happen.


John Slater is a partner and Capital Financing Team Leader at FOCUS Investment Banking LLC. He can be contacted on +1 (901) 684 1274 or by email:

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