Middle Market M&A Valuations Moderate, Select Industries Outperform.
Capstone Partners’ 2nd annual Middle Market M&A Valuations Index examines current EBITDA purchase multiples for middle market businesses, including an analysis of multiples across 11 major industries. Leveraging market research and Capstone’s proprietary data, we seek to provide business owners and market participants greater transparency into the pricing dynamics of completed merger and acquisition (M&A) sale processes in the middle market, defined as transactions under $500 million in enterprise value.
Throughout 2022, many purchasers placed great importance on margin defensibility when evaluating potential acquisition targets. In 2021, the post-COVID recovery resulted in a surge of demand and led numerous businesses to adopt a growth-at-all-costs mentality, which ultimately proved unsustainable. The impact of inflation and labor challenges on profitability was apparent for middle market businesses that participated in M&A sale processes. The average 2022 gross margin for sold middle market companies decreased from 37.9% in 2021, and average EBITDA margins were also affected.
Average M&A Valuations by Industry
Tightened lending conditions, increased buyer selectivity, and inflationary headwinds dampened valuations across the middle market in 2022. Market clearing bids appeared less frequently in deal processes in 2022 as the competitive exuberance experienced through much of 2021 moderated.
Moving through 2023, financial buyers are expected to place increased focus on target companies’ cash flow sustainability, as successful leveraged buyouts are often predicated upon rapid debt service.
Request our 2022 Middle Market M&A Valuations Index for access to the average EBITDA multiples across 11 industry verticals including Consumer, Healthcare, Business Services, FinTech, Industrials, and more. Also included in the report:
- Commentary on industry-specific middle market M&A volume and buyer breakdown.
- 2022 EBITDA multiples by transaction type.
- Possible explanations for the pricing dynamics.
- Insights to the typical margin and leverage profile of middle market target companies in 2022.
- Capstone’s outlook for middle market deal activity and valuations in 2023.
Middle Market M&A Valuations Index – Report Download
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This report was originally published in 2022 and updated on 3/16/23.
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