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The middle market and lower middle market for M&A transactions has been somewhat of a roller coaster for the last two years. The booming economy set in motion in early 2017 has both helped and hindered the sale of businesses. It has helped in that revenues and profits have improved, setting a pattern for better seller pricing. And, to some extent, it has allowed many firms to reconsider either the actual sale or the higher expected sale price, which often delays a quick closing.

The good news for sellers are the following market conditions:

  1. More equity funds (PEGs) have been formed, many with significant monies raised and dry powder.
  2. Strategic buyers are motivated by less than robust organic growth.
  3. In addition to regular financial institutions, non-traditional debt sources are actively pursuing deals, albeit at higher coupon rates.
  4. The Tax Act of 2017 set off an upward surge in multiples, as EBITDA numbers are expected to rise in 2018.
  5. Many buyers will compete for deals with larger down payments in cash.
  6. There are fewer pristine deals available, meaning those sellers with solid IP and clean linen (financials) will be pursued by more than one or two serious buyers.