Selling a Lower Middle Market Business

There is no consistent definition of the term “Middle Market Businesses” but it most frequently means businesses with value of more than one million dollars. Because of their higher annual volume of business, middle market companies are generally more sophisticated and have reached some key competitive advantages that distinguish them from other smaller companies. Buyers for middle market companies are generally more experienced in business either through small business ownership or previous executive positions in larger companies.¬† Market dynamics for middle market companies are also quite different from those of smaller businesses:

  • Because of the larger amounts of money involved in the purchase of a middle market business, the number of potential buyers is generally much smaller. Middle market transactions generally require various types of financing and are as a result very dependent on lenders. The credit crunch that characterizes the current economic climate has dramatically reduced the sources of financing for middle market transactions and therefore reduced the number of transactions.
  • Private equity groups investing in middle market businesses have now a serious advantage over individual purchasers because they have large amounts of equity to invest and generally do not need financing.
  • Middle Market companies have a larger number of employees than smaller businesses and are consequently less dependent on their owners. This reduces the transition risks for potential buyers and as a result increases the business valuation. Middle market companies sell generally for larger multiples than smaller businesses.
  • Middle market business buyers are very analytical and require detailed and accurate financial information before making a decision to purchase.
  • Middle market transactions are also more complicated and require help from professionals such as business brokers, accountants, experienced business lawyers, tax experts etc.

Middle market business owners looking for an exit strategy should definitively seek professional help to assist them in their transactions. Potential buyers have to be screened for financial capacity, business experience and management capabilities. Sellers should hire professional appraisers to value their businesses before putting  them in the market. Sellers have to prepare their businesses for sale by improving their accounting practices and restructuring their businesses to make their businesses less dependent on them and more transferable to potential buyers.

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