Add-On Deals Will Drive 2024 Middle Market M&A

Despite deal flow being down by over 30 percent year on year, there was a glimmer of hope as 2023 concluded. Deal volume was up by 33 percent in November and December compared to 2022.

While no one is calling for a return to the record levels of 2021, many experts say the middle market has historically been resilient and should perform well in 2024. Here's why.

We see deals getting done in the lower middle market and often, it's an add-on acquisition. We expect another good year in lower mid-market M&A regarding add-on acquisitions.

We see this happening in the technology, healthcare, and manufacturing sectors. The technology and healthcare sectors were the top two sector performers in the middle market last year, according to LSEG, with 156 and 124 deals completed worth about $38.5 billion and $28.7 billion, respectively.

Overall, there were 801 mid-market deals worth $240 billion completed in 2023 compared to 1,198 deals valued at approximately $350.2 billion completed in 2022.

Tech PE Poised to be Silver Lining of 2024



In Pitchbook's 2024 Private Equity Outlook, several analysts predict a continuation of sluggish private market trends for the first part of 2024, including a lack of exits and reduced fundraising. However, a silver lining of the report is that they project the tech sector to shine.

The core business strengths of the tech and software sectors remain robust, and valuations have become more reasonable. An analysis of publicly traded software companies reveals that valuations are below the five-year average on both an EV/sales and P/E ratio basis. Yet, strong fundamentals, such as EBITDA margins reaching five-year highs in 2023, indicate the sector's continued strength.

In addition, valuation expansion in the software sector is expected to correlate with interest rate declines, as historical data suggests.

Overall, the stage is set for a profitable 2024 for tech-focused buyers, underpinned by robust sector fundamentals, favorable economic conditions, and the inverse correlation of software valuations relative to interest rates. Sentiments are overall optimistic, though, as current tailwinds in tech appear more favorable than the broader market headwinds.

ABOUT US

When you want to sell your business or plan for a future sale, call or email me, Mark Mroczkowski. As a top M&A advisor, I am a trusted expert in my field, known for my ability to navigate complex transactions, provide valuable insights, and deliver outstanding results for my clients. All Chapman Associates provide personalized service based on our seventy years of successful M&A closings and relationships with more than 9,800 registered buyers.

Chapman is one of the most respected middle-market M&A firms in the country. What makes Chapman different from the competition?



• We make a market for our clients.

• We do not charge any up-front fees.

• Our fees are based on completed transactions.

• We devote senior-level attention to every M&A transaction.

• We do not delegate work to junior staff.

• We help clients set realistic goals and work hard to exceed them.

• We conduct in-depth research and rigorous analysis.

• We prepare all necessary offering materials.

• We have ten offices nationwide to serve our clients.

Mark Mroczkowski, CPA, CM&AA

Managing Director 

mark@chapman-usa.com

www.chapman-usa.com

407.580.5317