Manufacturing Continues To Lead Industry In Q2 2016 For Closing Deals Valued At $75MM And Below CMF Associates Survey Finds

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Manufacturing was the most active industry for closing deals in the lower middle market in Q2

“This past quarter’s results saw a general decline in deal multiples while multiples remained strong for larger companies. We expect this trend to continue to the year end.”

August 12, 2016 – Manufacturing was again the most active industry for closing deals valued at $75 million or less in the second quarter of 2016, representing 23.3% of lower middle-market deals and up from 18.9% from the first quarter, according to a new survey released by CMF Associates, private equity’s preferred operating partner for finance and financial leadership.

According to the survey, more than 80% of M&A firm respondents focusing in the lower middle market closed at least one deal in the second quarter, and manufacturing was followed by consumer and retail, software and technology, business services and healthcare.

The findings are the result of a new survey series launched in the first quarter by CMF. Known as the “Down Low” Report, the survey provides quarterly updates on M&A activities and trends in the extreme lower middle market, or deals with an enterprise value of $75 million or less. CMF has a network of more than 3,000 contacts at 1,200 middle market M&A firms, and quarterly survey results will be based on responses to a brief questionnaire sent to these contacts.

“The purpose of the survey is to provide data on extreme lower middle-market M&A activity and a real-time barometer to those working in this market segment,” said Dan Mahoney, Director, CMF. “Manufacturing represented an increasing percentage of the total deals reported and strategic buyers were more prevalent in the second quarter.

Results by Industry Segment 

While more than 80% of respondents reported closing at least one transaction in the second quarter of 2016, more than 18% reported closing three or more. The top trending industries closing transactions include:

1.    Manufacturing – 23.3%
2.    Consumer/Retail, Food & Beverage – 16.3%
3.    Software/Technology – 11.6%
4.    Business Services – 9.3%
5.    Healthcare – 9.3%
6.    Construction/Engineering – 7.0%
7.    Transport/Logistics – 4.7%
8.    Aerospace/Defense – 2.3%
9.    Automotive – 2.3%

All other industries accounted for 14% of all closed transactions.    

Top-Line Revenue, EBITDA and Multiples
From a top-line revenue standpoint, 45% of respondents said they completed transactions in the $5-10 million range, 25.0% reported $11-20 million, 7.5% reported $21-30 million, 5% reported $31-40 million, 5% reported $41-50 million and the remaining 12.5% reported more than $50 million.
In terms of EBITDA, more than 76% of respondents reported closing deals for companies generating $3 million in EBITDA or less, while nearly 12% reported closing deals for companies generating between $3.1 and $5 million. The balance of the respondents reported deals with EBITDA of $5.1 to $7 million (4.8%) and over $7.1 million (7.1%).
Purchase price multiples followed a traditional bell curve, with a peak of 24.4 % of closed transactions in the 4.1-5.0 x EBITDA (56.1% of all respondents reported multiples between 3.1-6.0 x EBITDA). Approximately 17% of deals reported closed in the 3.1 – 4.0 x EBITDA range and 14.6% closed in both the 5.1-6.0 x EBITDA range and more than 9x range.

Mahoney said, “This past quarter’s results saw a general decline in deal multiples while multiples remained strong for larger companies. We expect this trend to continue to the year end.”
Strategic Buyers Most Active

Buyer types were substantively weighted toward strategic buyers at 58.5% -- up from 39.4% in the first quarter -- while new private equity platforms accounted for just 14.6% -- down from 30.3% in the first quarter. Private equity-backed strategic (add-on) deals were down to 4.9% from 16.7% in the first quarter.

For the second quarter, it was reported that over 53% of closed deals reported no senior debt was issued at close. This would be consistent with strategic acquirers that pay for smaller acquisitions from existing cash or corporate lines of credit.
Geographically, the transactions were relatively evenly spread throughout the United States: Midwest (20.9%), West Coast (27.9%), Northeast (20.9%), Southeast (14%), and Mid-Atlantic (14%).

Survey Timing and Methodology
At the conclusion of the second quarter 2016, a brief questionnaire focusing on deal closing activity during the quarter was sent to CMF’s network of 3,000 contacts at more than 1,200 sell-side investment banks and business brokers operating in the lower middle market (enterprise value of $75 million or less). The survey was open for approximately two weeks. 
About CMF Associates
CMF Associates, LLC, private equity’s preferred operating partner for finance and financial leadership, delivers transaction- and transition-focused financial, operational, and human capital solutions to private equity backed portfolio companies. Headquartered in Philadelphia and with offices in Chicago, New York, and Vancouver, CMF’s offering includes interim CFO, COO, and controllership services; M&A advisory including pre-transaction due diligence, carve out services and post- transaction integration; full-time executive search; and deal sourcing. To learn more, visit
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Kimberly Kerr
CMF Associates, LLC

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