InSight

Exit and Growth Strategies for Middle Market Businesses

Middle Market M&A Sweet Spot

By Catherine Patience | Jun 25, 2014

Middle Market PulseFour major industry categories accounted for over 80% of the middle-market M&A transactions recorded by GF Data in 2013.   Manufacturing, business services, health care services and distribution lead all sectors in total deal volume last year. Of those, business services showed the greatest improvement year to year. This trend may be indicative of a general improvement in the economy and if 2014 lives up to expectations, the business services sector may continue to represent one of the “hottest” middle-market M&A sectors.

Companies in the business services sector provide support services to businesses, such as office administration, hiring and placement of personnel, security services, cleaning, and waste disposal.   According to First Research, the US business services sector consists of about 340,000 companies with combined annual sales of about $720 billion. As long as businesses continue to use temporary workers or outsource either landscaping, janitorial or security monitoring services, the sector will be ripe for growth.

The US business services sector is highly fragmented with the 50 largest companies accounting for less than 25 percent of sector revenue. Large companies often enjoy economies of scale and can compete for large, national accounts while small companies compete by offering highly specialized services, or through superior customer service. These smaller size companies often sit right in the sweet spot of the middle market.

Since the year 2000, business services has consistently represented between 15 -20% of Corporate Finance Associates‘ completed transactions.   Demand for business services ultimately depends on the level of business spending, which is determined by the health of the overall economy and so far all signs point to a health 2014.

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