The middle market shows a strong rhythm of merger and acquisition (M&A) activity. Annually, roughly 20% of middle market businesses acquire all or part of another company, and about 5% of businesses sell or divest all or part of their organizations. When middle market executives initiate acquisitions, the buys are mostly based on a strategic rationale: Buyers are looking to drive growth by acquiring market share, capabilities, technology, and/or talent. Selling is more often done for financial reasons and a need or desire to monetize all or part of a business. However, strategic objectives can also play an important role in sales decisions, such as wanting to sell off ancillary divisions or units in order to focus on the core business. While most buyers and sellers make their decision first and then begin looking for a potential target or buyer, quite often opportunities present themselves, and even if leaders were not intending to buy or sell, they take advantage of the circumstances.
Whatever the motivation, and whether the purchase or sale is strategic or opportunistic, M&A is crucially important to the companies that participate in it. Buyers, specifically, hope to obtain 26% of their total growth from their acquisitions.
Yet most middle market companies lack extensive M&A experience. Among companies that bought or sold in the past three years, roughly 30% were doing their very first deal, and about 40% say they do deals infrequently. As a result of this inexperience, middle market executives may fail to drive the best bargain or may encounter unexpected challenges that impede the success of both deal execution and post-merger integration. What’s more, middle market companies often fail to fully leverage outside expertise and support that could help pave the way to a more successful deal.