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What Financial Buyers Look for in the Middle Market: Insights from Private Equity and Financial Sponsors

Financial buyers, such as private equity firms and financial sponsors, are constantly on the lookout for investment opportunities in the middle market. This market, which generally refers to companies with revenues between $10 million and $1 billion, offers a wide range of investment possibilities for these buyers. In recent years, there has been an increasing focus on the lower middle market, which includes companies with revenues between $10 million and $100 million. According to a report by PitchBook, financial sponsors completed over 3,300 deals in the lower middle market in 2018, representing a total deal value of almost $30 billion.

So, what are financial buyers looking for in the middle market? There are several key factors that they consider when evaluating potential investments.

Importance of Unique Products or Services

First and foremost, financial buyers are attracted to companies with unique or defensible products or services. These types of companies often have a competitive advantage in their market, which can make them more attractive to potential buyers. Companies that have above average growth potential with proper investment are also highly sought after. This could include businesses run by owners or teams that wish to diversify their holdings but remain with the business with partial ownership.

Significance of Established Channels for Expansion or Partnership Networks

In addition to strong products or services, financial buyers also look for companies with recognizable, established channels for expansion or partnership networks. This could include partnerships with key distributors or suppliers, or a strong customer base. Rapid growth is also a key factor for many financial buyers, especially if it can arise from strategic realignment, new talent, or additional capital. Finally, financial buyers are often drawn to companies with steady cash flow, even if they lack sufficient funds to reach their full potential.

Opportunity Driven by Aging Population and Transitioning Ownership

It’s worth noting that the aging population in the United States is also driving interest in the middle market. As more business owners look to transition ownership, many don’t have family members to take over their roles. This presents a significant opportunity for financial buyers, who can step in and provide the capital and expertise needed to help these businesses continue to grow and thrive.

Overall, financial buyers in the middle market are looking for companies that have a strong foundation, with the potential for growth and innovation. By demonstrating a clear value proposition and solid growth prospects, middle market companies can attract the attention of financial buyers and potentially secure a successful investment.

Ready to attract financial buyers and secure successful investments in the middle market? Partner with Astria LLC, your trusted advisor in navigating the complexities of the middle market landscape. Contact our experienced team today to discuss your specific business needs and discover how we can help you position your company for maximum appeal to financial buyers.

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