We’re excited to announce the release of our latest Lower Middle Market M&A Trend Report, where we dive deep into the evolving landscape of mergers and acquisitions (M&A) for companies valued between $5M and $50M. Below, we’ve highlighted 5 key trends you need to know to stay ahead in the market. These trends are shaping deal structures, negotiations, and valuations—and directly impacting business owners like you.
The Rise of Earnouts in Closing Deal
Amid economic uncertainty, the use of earnouts has increased by 62%, offering a solution to valuation gaps between buyers and sellers. With nearly a third of 2023 deals including earnouts, this trend highlights the need for flexibility and creativity in deal structuring.
Increased Reliance on Representations and Warranties Insurance (RWI)
RWI is reshaping M&A negotiations by reducing the need for lengthy indemnification discussions. Deals that leverage RWI often feature smaller escrows and more seller-friendly terms, providing smoother exits while still protecting buyers from unforeseen risks.
Working Capital Adjustments Drive Precision in Transactions
More than 90% of private M&A transactions now incorporate purchase price adjustments (PPAs). These adjustments ensure buyers only pay for what they get at closing, while sellers can secure better terms by presenting accurate working capital figures throughout negotiations.
Shifting Sector Focus: Supply Chain, Life Sciences, and Media Lead the Way
Key sectors such as supply chain logistics, life sciences, and media technology are driving activity in 2024. Companies with advanced technologies like AI, blockchain, and cybersecurity solutions are hot targets, as buyers prioritize digital transformation and operational efficiency.
Private Equity’s Influence Continues to Grow
Private equity firms remain dominant, accounting for 65% of deals that include RWI. PE buyers are focusing on strategic add-ons and co-investments, with diligence timelines extending to 5-6 months to mitigate risks in this evolving landscape.
These trends reveal a clear path forward for business owners considering a transaction. Staying ahead means embracing flexibility, adopting robust digital strategies, and being prepared for thorough due diligence.
To explore these trends in more detail, download the full report now and see how these developments could impact your next move.
Download the Full Lower Middle Market M&A Trend Report Here.
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