Skip to content

Middle Market M&A-A Summary of 2020 and Outlook for 2021

  • by

In early January, the American Mergers & Acquisitions Association (“AM&AA”) issued the M&A Access 2021 Q1 Report. The AM&AA is an organization that focuses on the Middle Market. I’ve summarize the key findings below and provided my overall final thoughts at the end.


  • While the report is mostly US-centric, many of the observations we can make from the report would be applicable to the Canadian market as well. The survey included both buy-side and sell-side professionals across a broad spectrum of industries, 42% of which were AM&AA members. About 40% described themselves as an Investment Banker or M&A intermediary while another 11% classified themselves as a business broker. Other significant categories (i.e., greater than 5% representation) included value/growth advisors, attorneys, CPAs, and private equity investors.
  • Of the respondents, manufacturing represented the largest sector amongst active deals followed by business-to-business services and healthcare. The least active sectors were recreation & events, followed by rental and leasing businesses.

Current Deal Pipeline

  • About 60% of respondents are working on five active deals or less, however about 10% were larger firms with 26 or more deals in their pipeline. For almost 40%, their largest deal was under $2 million in total consideration, while for 16% of firms, their largest deal was $100 million or greater. This indicates that 44% of respondents are operating in the Lower Middle Market.
  • The highest periods of activity were in the spring and fall with the summer the most quiet. However, about 30% of respondents said all twelve months were roughly equal in terms of volume and activity.
  • Amongst active buyers, strategic/synergistic buyers, private equity add-ons, and private equity platform investors represented the largest categories. Internal transfers (management, employees, or ESOPs) represented the smallest group.
  • Almost 50% of deals used a high degree of third-party debt (i.e., greater than 60% of total consideration was funded through third-party debt). In general, highly levered deals relied more on senior commercial debt while less levered deals relied more upon mezzanine financing.

Impacts of COVID

  • Personal factors (e.g., retirement, health, etc.) represented the largest category driving transactions in the past year
  • Almost half of respondents said activity was about the same as the prior year, 23% said activity was higher, and 28% said things were worse than the previous year. Similar observations were noted for deal prospects.
  • On the valuation front, 58% of respondents said valuations were about the same as the prior year. 21% said things were higher, while 20% said valuations were lower.

Deal Process

  • In general, deals are taking two months longer to close with increase due diligence required. Uncertainty in the market and overall economy was listed as the dominant challenges for deal makers.
  • Reps and warranties along with escrow were the areas receiving greater scrutiny in the past year compared to previous years.
  • Almost 60% of deals required either audited or reviewed financial statements.

2020  Summary and 2021 Outlook

  • Seller and buyer motivation are expected to have the most positive influence on deals in 2021 while (not surprisingly) COVID-19 is expected to have the most negative impact in the next year.
  • Strategic and synergistic deals was the largest category of deals that closed while internal deals (i.e., management, ESOPs, or other owners) was the lowest. That being said, internal deals had a higher close rate (versus being suspended) than any other category.
  • Bricks & mortar retail along with hospitality & entertainment had the highest fail rate for closure in 2020. Conversely, Online Retail was a category with a relatively high close rate alongside IT services, financial services, and technology.

Final Thoughts

So, what does all this mean for Middle Market companies heading into 2021? I think from all this data we can parse a few key points:

  • Deals are still getting done although it may take longer due to circumstances to either find buyers or work through due diligence.
  • If you have a strong company with potential and in an industry outside of bricks and mortar retail or hospitality & entertainment, there are still opportunities to transition your business.
  • Private equity and strategic/synergistic buyers are still very active and looking for good opportunities.
  • Internal deals are happening in lower numbers but have a higher success rate to close. This shouldn’t be a surprise since the buyers in internal transactions likely know the businesses well (and similarly, sellers know the buyers well).
  • Valuation has been very bifurcated in terms of the impact of COVID-19 and will be determined on a case-by-case basis. However, if the fundamentals of your business (and the industry in which it operates) are strong, then valuation so far has not been impacted in such instances.

Next week, I will post a video going into more detail on this report and take a deeper dive into what it might mean for a Middle Market business.