The first half of 2024 marked a resurgence in middle-market M&A deal volume in the U.S. According to GF Data’s Fall 2024 Key Deal Terms Report, a total of 180 transactions were completed in the first half of this year, positioning the market to surpass previous years’ totals. Notably, average purchase price multiples on completed deals reached 7.4 times Trailing Twelve Month (TTM) EBITDA in the second quarter, up from 6.9 times in the first quarter.
Source: GF Data’s Fall 2024 Key Deal Terms Report
The uptick in deal activity seems to reflect increased investor confidence. The Federal Reserve’s decision to cut interest rates in September along with cooling inflationary pressures also helped contribute to a more conducive environment for M&A activity.
This report consists of data from four hundred and twenty-five participating private equity firms who provided GF Data with information on transactions closed between January 1, 2023, and June 24, 2024. The participating PE firms reported a marked increase in capital deployment, with many firms seeking to leverage their accumulated dry powder. This renewed investment enthusiasm contributed to a 40.6% decrease in the incidence of seller financing and earnouts, suggesting that buyers are increasingly willing to commit capital without requiring extensive concessions.
In terms of deal structures, the report reveals a noteworthy trend: indemnification caps have dropped to an average of 17.8% of Total Enterprise Value (TEV), down from 21% in 2023. This shift indicates a softening in deal terms, which may reflect an increasingly favorable market for sellers. The decline in indemnification caps, particularly for smaller transactions, showcases a willingness among buyers to assume greater risk in pursuit of quality acquisitions.
The healthcare, business services, and manufacturing sectors have emerged as key areas of interest within the middle market. Industry-specific trends reveal that healthcare services have seen a significant uptick in average purchase price multiples, while business services remained mostly unchanged.
This segmentation highlights the importance of industry dynamics in shaping M&A activity and underscores the robust valuations that private equity firms are willing to pay for high-performing businesses.
Looking ahead, the outlook for the remainder of 2024 appears cautiously optimistic. The combination of a steady flow of deals, ample private equity capital, and potential improvements in economic conditions suggests a conducive environment for business owners considering an exit strategy. While larger transactions may face increased regulatory scrutiny, the lower middle market remains a hotbed of activity, attracting strong interest and competitive valuations.
As we move further into the year, the findings from the GF Data Fall 2024 Key Deal Terms Report underscore the evolving landscape of middle-market M&A. With favorable conditions and heightened activity, business owners should consider exploring strategic sale options to capitalize on the current momentum.
If you’re curious about valuation multiples in your industry or want to explore your exit options in today’s favorable market, our team is here to help. Contact us to learn how you can capitalize on the current momentum and maximize the value of your business.
About ACT Capital Advisors
ACT Capital Advisors is a premier mergers & acquisitions firm representing lower-middle-market companies across all industries. ACT has a 40-year history of deal-making, closing 250+ transactions, and unlocking over $2.5 billion in wealth for its clients. For more information, visit https://actcapitaladvisors.com.
*Data and insights in this article are based on the GF Data Fall 2024 Key Deal Terms Report.
"*" indicates required fields