Most of the analyses in the Monitor look at three key segments:  Business Services, Industrial Products and Software (click here for more information). These segments correspond to the three vertical market practices at Mirus Capital Advisors, and together represent a large portion of the middle market. For each of these segments, the Monitor looks at developments in both the public market and in the market for mergers and acquisitions. In addition, every issue features a different "Metric of the Month" giving you unique insight into valuation, merger trends and deal structure.  I hope that you find this information useful and that it helps contribute to your success in the middle market.

The Exhibit demonstrates that out of the deals for which a transaction value is known, the middle-market as Mirus defines it (deals with between $10MM and $100MM in value) has the most transaction activity. The exhibit also shows that for almost two-thirds of transactions, no deal value was disclosed. Transactions for which no valuation information is available are typically deals between two private held companies (with no external reporting obligations and no incentives to make deal terms public). Since in our experience many of these transactions involve middle-market companies, we include these transactions when analyzing middle-market deal activity.   The strong middle market M&A activity measured by the number of deals is (logically) in sharp contrast with deal activity measured by deal value. For example, over the last twelve months approximately 95% of  all US M&A activity involved targets with a deal value over $100MM, driven by a relatively small number of multi-billion dollar transactions.

To track the performance of public companies in the middle-market, Mirus has compiled a sample of close to 1,500 U.S. traded middle-market companies with revenues over the last twelve months between $10 MM and $100 MM. We track value-weighted indices for each of the segments mentioned above, and also track the companies with the largest increases and decreases in share price over the last month (where we exclude companies with a market capitalization of less than $25MM, since the stocks of these companies tend to be relatively thinly traded and more volatile). Additionally, we track valuation metrics based on the Enterprise Value (market value of equity plus the value of net debt) of these public companies both relative to sales (EV / Sales) and relative to earnings before interest, taxes, depreciation and amortization (EV / EBITDA). For the analysis of EV / EBITDA, we exclude companies with an EBITDA margin below 5%, to avoid inflated multiples for companies with low profits. It is important to note that privately held companies are typically valued significantly below comparable public companies, due to a lack of liquidity and marketability of the equity, as well as due to a perception of more limited financial and operational scrutiny.

In the mergers & acquisitions (M&A) market, the Monitor tracks acquisitions for US based companies with deal values between $10 MM and $100 MM, although we also include transactions for which no valuation information is available for the purpose of measuring deal activity. In addition to deal activity by segment, we track EV / Sales multiples over the last twelve months. Note that the number of transactions for which reliable valuation information is available for each month is typically relatively small, which explains why the M&A valuation metrics are relatively volatile. For this same reason, we base the valuation multiples on deals of all sizes, not just transactions in the middle-market. In general, to minimize the impact of outliers, we typically use median values as opposed to straight averages throughout our analyses.