Lies, Damned Lies And … The Middle Market

By Tom Granahan, M&A Magazine

July 28, 2008

I’m not always on board with its commentary, but The Economist had a good story the other day about how misleading statistics can be. No, that’s not exactly breaking news, but the magazine offered a clever lead and also had me thinking about the middle-market dealmaking arena.

“Hedge funds had a brilliant first half of 2008, outperforming Wall Street by 12 percentage points,” the magazine wrote. “Hedge funds had an awful six months, producing their worst return on record. Depending on your point of view, the same statistics can be used to support both those statements.”

There’s been no shortage of coverage about how well the middle market has held up in the face of the famine at the higher end of the food chain. But with the backdrop now getting sickly in the middle market, too, we’re bound to hear some of the die-hard optimists telling us things aren’t so bad, while the naysayers will be out in force. Here’s how it might go:

“There were 242 US middle-market deals announced in June, a 40.5% free fall from a year ago.” (Bad version.) “The 242 US middle-market deals done in June represented a 5.2% jump in the number of deals done in May.” (Good version.)

Or maybe…

“The median enterprise value/EBITDA multiple over the past 12 months stands at a solid 11.5x.” (Good version.) “The median multiple from February through June is 10.8x.” (Bad version.)

Alas, using these and other numbers in a realistic way, it’s tough to paint a pretty picture of the mid-market landscape right now. According to R.W. Baird (which also supplied the above numbers), there have been a total of 1,553 announced middle-market transactions year to date, a 26.9% decline from the same period last year. Middle-market dollar volume decreased to $153.2 million in the same time frame, a 31.6% decline compared to the first six months in 2007.

There’s more; in June, middle-market dollar volume totaled $23.6 billion, a decline of 45.4% versus the same month in 2007.

It’s hard to make lemonade out of those lemons … but someone out there can! Let us know why the middle market is in better shape than these stats may indicate. Just choose your numbers wisely.

Thomas Granahan
thomas.granahan@sourcemedia.com