Why I'm Still In Love With The Mid-Market

November 13, 2007

In a market that has been derailed by the subprime mortgage debacle, multibillion-dollar losses from major Wall Street firms and a pervasive sense of uncertainty, one segment of the capital markets continues to chug along with remarkable stamina: middle market M&A.

The pace may be off its first-half record pace, but there’s still plenty of buying, selling and investing going on. In the last week alone, there were completed or announced deals for Restoration Hardware, Mini-Skool, Karel International, LogistiCare, Aircraft Fasteners International, Lion Brewery, Satellite Communications Group, Centra Industries, Alcoa Automotive Castings and Sprint Industrial Services.

Perhaps no mid-market firm has been on a bigger tear since September than Audax Group, which has completed deals for Mini-Skool, Affordable Interior Systems, Nivel Holdings, Cover-All Holdings, Help/Systems Inc. and Cinelease. That’s impressive during any market (and probably means Managing Director Jay Jester is seeing more books than a librarian.)

Unlike the boom period, there has certainly been an uptick in the number of deals going to strategic buyers, who may not be highly leveraged and see an opportunity to buy. But the secondary buyout trend is far from dead, and even deals with a sizable debt component are making it to the finish line.

None of this is to downplay the obstacles to M&A. Even the mid-market personification of Tony Robbins can’t be too sanguine at a time when financing terms are probably going to worsen and equity contributions are bound to increase. But there’s also no reason to turn into Bill Maher, either, because of two simple truths: 1. Corporations need double-digit growth to make their investors happy. 2. Private equity firms are flush with cash and beholden to spend it.

The belief that mid-market activity will continue is the backdrop to our upcoming event on Dec. 10 in New York, which we’re calling The New Rules of M&A. Virtually all of our speakers—including Audax, Riverside and several other PE and hedge funds—have remained active this fall, and can attest to and better explain some of the points I made above.

For more info or to register, go to http://www.sourcemediaconferences.com/NMA07