P Website MM Valuations Index Report Web Banner
Print Friendly, PDF & Email
March 2024 Report

Middle Market M&A Valuations Soften, Market Participants are Optimistic for a Recovery in 2024

US Middle Market M&A Valuations IndexCapstone Partners’ annual Middle Market M&A Valuations Index examines EBITDA purchase multiples for middle market businesses. 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 middle market merger and acquisition (M&A) sale processes.

Middle Market M&A Multiples Cool, Select Pockets Garner Premium Valuations

While equity markets largely shrugged off the rapid succession of interest rate hikes in 2023, middle market M&A valuations experienced downward pressure. Elevated transaction costs, uncertainty over projected cash flows, and a reserved private equity buyer pool contributed to average and median M&A valuations falling year-over-year (YOY) in 2023. While business owners encountered a challenging valuation environment, several bright spots of the market have provided optimism for resilience and recovery in transaction value in 2024.

Buyers demonstrated heightened discipline in M&A processes in 2023, refraining from overextending themselves to acquire target companies. While high-quality assets still commanded solid buyer interest and competition in bidding, market clearing bids were less frequent than in prior years. This may have coincided with buyers moving to lower levels of the middle market, a common occurrence amid market uncertainty. When buyers did pay premium multiples, typically these businesses had demonstrated gross margin defensibility, healthy revenue visibility, and sustained product or service demand.

Disinflation in recent months has begun to bring relief to a strenuous cost environment that challenged business owners for the past two years. Middle market businesses with pricing power and scale were often able to maintain healthy profitability levels. However, for many market participants, elevated input costs materially impacted profitability levels. Rising input costs were not the only culprit of a difficult operating environment. Heightened interest rates made the cost of servicing debt, or refinancing debt, particularly burdensome. In 2022, sold middle market businesses typically had ample operating income to cover interest expenses, however this coverage deteriorated significantly in 2023.

Many dealmakers are optimistic that 2023 marked a trough for both M&A volume and pricing, with 2024 positioned to experience a rebound in purchase multiples. Seller and buyer expectations are anticipated to become more aligned after such dislocation post-pandemic, when purchase multiples at times became detached from fundamentals. For the first time in nearly a decade, the cost of money is meaningful, and likely will be for the foreseeable future as the Federal Reserve works to meet its mandate. However, quality companies with sound financials and resilient end markets are poised to garner buyer appetite. Private equity buyers, facing limited partner pressure to generate returns, are expected to reenter the M&A markets in 2024 after sitting on the sidelines for much of 2023. The valuation environment may take some time to recover, but the M&A and macroeconomic environment in 2024 is expected to present a favorable backdrop for many prospective sellers to achieve an optimal exit.

Middle Market M&A Valuation Trends by Industry

The report includes M&A volume, valuation multiples, and trends for 11 key industries where Capstone Partners maintains designated teams with deep sector expertise:

• Aerospace, Defense, Government & Security
• Building Products & Construction Services
• Business Services
• Consumer
• Energy, Power & Infrastructure
• FinTech & Services
• Healthcare
• Industrials
• Industrial Technology
• Technology, Media & Telecom
• Transportation, Logistics & Supply Chain

Capstone’s Outlook for 2024

Despite inflationary headwinds, middle market business owners have continued to maintain a positive economic outlook for the next 12 months, particularly at the local and global levels, as noted in Capstone’s 2023 Middle Market Business Owners Survey. Of note, CEOs headquartered in the Western region of the U.S. were the most bullish on local economic outlook, with 65% of owners feeling very or somewhat positive. This optimism is likely partially driven by the recent increases in commercial and public construction spending in the Western U.S., which is propelling local economies. CEOs have remained relatively cautious regarding overall U.S. economic outlook, with less than half (46.6%) holding a very or somewhat positive outlook for the U.S. economy.

While many factors can influence a business owner’s industry outlook, there has been a strong correlation between revenue growth and industry optimism among the CEOs surveyed. Notably, the Industrial Technology and Energy, Power & Infrastructure industries showcased the highest concentration of CEOs feeling very positive on the state of their respective industries over the next 12 months. These industries also comprised the highest percentage of owners experiencing YOY revenue growth in 2023. Additionally, the mission-critical nature of manufacturers and service providers in these industries has likely supported heightened optimism.

The current stage and initiatives of a business often dictates which financial services are in demand. As the majority of CEOs surveyed indicated growth strategies are a priority for 2024, the lion’s share (31.5%) of owners anticipate a need for growth strategy support services. Similarly, 28.5% of owners require accounting and audit support to shore-up cash flows and establish financial stability. In addition, more than one-fourth of CEOs demonstrated an interest in accessing relevant industry research to keep up with emerging industry trends, complete competitor analyses, and track capital markets activity in their space.

Middle Market M&A Valuations Index – Report Download Middle Market M&A

Complete the form below to request the full publication, including:

  • A breakdown of three-year average middle market M&A valuations by industry.
  • Discussion of middle market M&A transaction volume on an industry level.
  • Commentary on the operating performance of target companies sold in 2023 compared to prior years.


Want to find out what your company could sell for?

Our industry coverage spans several verticals across the middle market, each comprising multiple subsectors. If you are an owner or investor of a private middle market company, we invite you to contact us today to speak to an expert in your space and receive an informal business valuation, advice on the best time to sell or recapitalize, and actionable steps you can take to elevate shareholder value.

Print Friendly, PDF & Email

Insights for Middle Market Leaders

Receive email updates with our proprietary data, reports, and insights as they’re published for the industries that matter to you most.