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Private Equity

Reviewing 2017: An Expert’s View on Middle Market Activity


The beginning of 2017 had some investors and business people in the middle market feeling confident and hopeful while some were confused and concerned.

Investment bank Brown, Gibbons Lang & Co began the year stating “uncertainty looms in healthcare, one of the largest markets in the US economy. Resource- based industries such as energy and metals could see much needed lift, while the outlook is decidedly bullish for infrastructure.”

The BGL report said that a surplus of capital and a pent-up demand from buyers and sellers would provide a foundation for a more active M&A market in the 2017 and conditions continued to be very favorable for owners of middle market assets that wanted to generate liquidity, as competition has pushed enterprise value multiples to historical high levels.

Chris Williams at Twin Brook Capital was one of the experts BGL interviewed for its report. Now that we are almost at the end of 2017, we spoke with Chris to hear how the reality of the year matched up with the forecast.

The following is an interview Axial did with Chris Williams. The views expressed below are solely those of Chris and do not necessarily represent the views of Axial.

Deal flow

Deal flow over the last three months has picked up significantly. We have seen an uptick in pretty much all sectors however, I will say that healthcare, insurance and financial services are probably the most robust sectors. Twin Brook Capital Partners is a generalist firm working on all sectors except oil & gas, anything highly cyclical or high tech related.

We might have a different point of view from our competitors and that is because the part of the market we work in, which is the lower middle market (firms with an annual revenue in the range of $5m to $50m), and activity level in that space is pretty consistent. So it is not like that the third quarter has seen a spike in deal activities, just that it was better than earlier this year.

I think there is a healthy level of activities in the market right now because valuation and multiples are so high. Anyone who owns a good business is pretty much taking it to market to take advantage of the robust market values.

For the most part, the Fourth quarter has always produced an uptick in terms of deal flow compared to the prior nine months of the year – that’s pretty much the case every year.

Comparing 2017 with 2016

It’s a little too early to compare 2017 with 2016 yet as we are early into the fourth quarter. But based on what we have seen so far I’d say that 2017 is doing a little better than 2016. The year so far has seen a lot of activity from both strategic buyers and institutional investors. The strategic buyers have a lot of cash on their balance sheets which can make them attractive buyers. When it comes to the part of market we operate in, the private equity firms are buying these businesses with an intent to build them through actively managing the companies either through add-on acquisitions, product line expansions, etc.

Impact from the new administration

The impact has been neutral on the middle market thus far. When the election first came out, a lot of people felt that this is going to be a boom for the middle market in terms of the ease in banking and regulations, and an overall more proactive business environment. I will say that it is still too early to tell, as it has been too short period of time to say that there is a high level of positive impact coming out of the Trump administration at this point for the most part.

But there is a lot of questions surrounding certain industries, such as healthcare, where people are still waiting to see the “real changes.” There is a question mark surrounding what ultimately gets done. But I don’t think there is going to be changes significant enough to the point that it will change the middle market industry dynamics.


There is a number of factors that are driving the multiples; the US economy has been expanding in recent years, there is an increasing number of healthy business that are growing. Also, there is a lot of capital in the market, from strategic to PE buyers coupled with a large amount of debt capital. There are lenders that are willing to put out a lot of money, there are private equity firms and strategic buyers that are flush with cash and are looking to put money to work. When you have all these things together, that tends to create a “more expensive” market.

In terms of interest hikes, there hasn’t been any substantial impact from that. If rates start to move dramatically, people may start to factor that in more. But right now interest rate increases are such a minute element, and it hasn’t mattered much.

Sectors that are seeing high multiples the first nine months of the year are software services, IT, healthcare and financial services. It’s hard to say what’s considered a “high multiple” because it is industry specific, really. We have seen a number of software businesses trade north of 10-12x.

Outlook for the last quarter

Our view on the fourth quarter is that business will continue to be robust as the economy is still going strong. The lending environment won’t really change much and it will be as liquid as it’s ever been. People will still bring businesses to the market. Combining all the influences together, we think there is a pretty good atmosphere for robust deal activity.

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