Lower Middle Market Pursuits: Buyer Sophistication Drives Quality in Q3

The third quarter of 2022 was one of consistency, reflecting no major shift in global perspective or macroeconomic trends. The bearish sentiment around public markets lingered, inflation remained an acute point of focus, geopolitical volatility carried on, and lower middle market M&A remained robust in the face of it all. 

Our latest edition of the Lower Middle Market Pursuits Report tells the story of continued resiliency in the face of strong headwinds. While we may not have seen the same jump in deal flow as was there in recent quarters, Q3 remains impressive as there has been consistent – and significant – QoQ growth since the beginning of 2022. And furthermore, buy-side mandates hit an all-time high in Q3, demonstrating how strong the demand for acquisitions in the LMM remains. 

All of that said, top of the funnel data sometimes draws a different picture than what ultimately emerges, and our down-funnel metrics in this report demonstrate how discerning buyers have become. While the Pursuits Report does not dive into deal closures, we did see a drop in the overall pursuit rate – from 12.29% in Q2 (a previous all-time low) to 11.9% last quarter – as well as a 13% reduction in IoIs issued. LOIs issued remained virtually flat, despite a rising number of targets with impressive profit margins (an average of 25% across all in-market deals).

Download The Q3 2022 Lower Middle Market Pursuits Report

This snapshot provides only a glimpse into the Q3 analysis presented in the fall edition of the Lower Middle Market Pursuits Report, which offers insight into how Axial’s 20,000+ active members are navigating the current deal environment. The report also includes a list of the Top 10 buy-side and sell-side members based on pursuit rate, as well as on-the-ground commentary from Erik Endler, Senior Managing Director of Three Twenty-One Capital Partners and Matt Brugner, Founder of Stewardship Partners. 

It remains to be seen how the deal funnel will further evolve through the end of the year, but based on the strong data we continue to see QoQ, we’re excited to see how things close out.

We hope you enjoy the report!