It takes a long time to get a deal done. Pricing is quixotic, deal structures more complicated. Credit is more available, but not gushing. If the m&a middle market lacks a perfect environment, it still is doing a lot more dealmaking in 2010, cued by changing strategic outlooks, industry consolidations, and a diversity of pressures on many entrepreneurs to sell.
 

Coalescing Forces – The middle market is responding to a wake-up call after sleepwalking through the early 2000s. Dealmaking is heavily strategic. Acquirers are sifting prospercts among mid-sized firms to enlarge share or diversify product offerings, especially in consolidating industries like auto parts, chemicals, and consumer products. On the sell side, many business owners who held back during the pricing slump are coming to market, often because consolidations and strategic pressures are limiting prospects for continuing as stand-alone businesses. Among the more subtle trends driving sales are exits by younger entrepreneurs and the impact of moves by large companies to whittle down their lists of suppliers.
 

Power of Pricing – In general, pricing for middle-market targets is firming. But the gap between the high side and the low side is widening. Companies offering special advantages – positions in growth or advancing industries, significant mass for consolidation, coveted product lines – are drawing hefty and expanding multiples. Firms in commodity industries that lack unique qualities continue to field low-ball bids. Re-entry of financial buyers helped stir competitive fervor, but fears of over-payment plague acquirers whose aim is enhanced value creation.
 

Limited Foreign Interest – The local acquirers are experiencing little competition from overseas buyers for middle-market targets. Recessions in Europe and U.S. have dampened buying interest, and many foreign-based firms are turning to Latin America for overseas investments. By contrast, Local companies are getting more active in a number of global sectors buoyed by the popularity of U.S. products, particularly consumer products, abroad.
 

Whetting Buyers’ Appetites – One-on-one negotiations and controlled auctions drawing a limited number of qualified bidders are the dominant forms of marketing smaller and mid-sized companies. Pricing restraints by acquirers are important influences on the format. But more telling may be information-hunger. Buyers demand heavy up-front due diligence on every business facet from operations to distribution to synergies before going ahead.

Easier Credit – Banks, both in and outside of Local, are back into m&a lending, but with some strings attached. The higher-priced mid-sized deals are not having much trouble getting financed if the business is good and the terms are sound. But convincing the same banks to back a smaller deal priced in the $10 million to $15 million range remains a very tough sell.