Study Finds Growing Values for US Middle Market Companies
06 December 2004
December 6, 2004 | Chicago, IL, Cleveland, OH - A study released today by Brown Gibbons Lang & Company (BGL) found that prices paid for middle-market companies appear to be at their highest levels since the end of the Internet-fueled, dot-com boom in the late 1990s. BGL is a leading middle-market, cross-border investment banking firm with offices in Cleveland and Chicago.The study found that through the end of the first three quarters of 2004, the number of domestic M&A transactions involving middle market firms – or those with values of roughly $25 million to $500 million – increased 11.5 percent. However, the value of those transactions increased 24.1 percent to more than $122.2 billion compared to the same period last year, according to the report.
A variety of factors appear to be driving the higher valuations of companies being acquired, including:
• higher quality businesses being offered for sale;
• an improving economy;
• low interest rates;
• abundant capital for acquisition financing; and
• intense competition for cash-flow generating companies, including from foreign buyers.
“In the first nine months of 2004, middle-market M&A valuations reached their highest levels in nearly five years,” said Scott H. Lang, BGL Senior Managing Director and Principal . “However, in contrast with the late 1990s, when corporate buyers, often using their own stock as acquisition currency, largely were responsible for the sharp rise in company values, the current high valuations appear to result from much sounder fundamentals.”
While valuations – based on multiples of available cash flow – have increased for all levels of middle market companies, they were most pronounced for firms valued between $250 million and $500 million. For those companies, valuations have increased from 7.1 to 9.9 times cash flow, or 39 percent.
The continued favorable conditions for middle-market companies are likely to continue in the near term, but the study noted a number of potential challenges which could hurt valuations for middle market companies, including a weakening U.S. economy, increasing energy prices, falling housing prices, possible U.S. tax rate increases, a slowing Chinese economy, and continued international instability.
To read the report in full, please visit www.bglco.com.
About Brown Gibbons Lang & Company
Brown Gibbons Lang & Company is a leading independent investment bank serving middle market companies and their owners throughout the United States and internationally. BGL’s professionals are experts in mergers & acquisitions, debt & equity placements, financial restructurings, and were named 2003 US Deal Makers of the Year by The Mergers & Acquisitions Advisor. BGL is the U.S. partner in Global M&A, the world’s leading working partnership of investment banking boutiques. For more information, please visit www.bglco.com.
