Mid-Market M&A Report: The Valuation Gap

Download Mid-Market M&A: The Valuation Gap, a report by Firmex and Mergermarket.

The Valuation Gap

Over the last year, a paradox has persisted in the North American mid-market: buyside interest in deals has been at an all-time high, and yet the number of deals has fallen. In fact, it was the worst January in 25 years for mid-market deals in 2016. What’s going on?

Part of the explanation is a valuation gap between buyers and sellers. High-quality targets in the mid-market have become few and far between, and sellers are trying to leverage that scarcity to peg their valuations a notch higher. Buyers do not always get on board, particularly  in frothy sectors such as technology and life sciences, creating a divide. However, the picture could change in the coming year. According to  our expert panelists, a macroeconomic downturn may temper expectations on the part of sellers, allowing the two sides to find consensus on valuations. Technical solutions such as earnouts can also be part of the solution.

With corporate cash holdings and private equity dry powder still at high levels, the appetite for mid-market deals will remain robust. The question is: How can buyers and sellers close the valuation gap?

Virtual data room provider Firmex worked with Mergermarket to ask six leading experts for their take. See the results in this edition of our quarterly report on North American mid-market M&A.

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