GMB Business Advisors

M&A Dynamics for the "Lower Middle Market"
Spring 2006

GMB Business Advisors, a division of Green Manning & Bunch, Ltd., focuses exclusively on providing merger & acquisition and related financial advisory services to the "lower middle-market."

Frothy Times!
The financial press is awash with headlines proclaiming for middle-market companies that "it's a great time to be a seller!" Stiff competition between cash rich strategic buyers, well-funded financial buyers and cheap debt has driven purchase price multiples for middle-market buyouts to a 10-year high. Time to sell! Or is it?

What qualifies a company as "middle market"? Ask ten people, and you are likely to get 10 answers, ranging from $5 million of market value on the low end to $1 billion on the high end. Given this huge range, do the same all-time-high market multiples apply to the companies on the low and high ends? Not likely.

What is Lower Middle-Market?
In our view, companies at the lower end of this valuation range typically share the following financial characteristics:

Revenue -- $10 million to $50 million
EBITDA (cash flow) -- $1 million to $5 million
Enterprise Value -- $5 million to $30 million

Other Entrepreneurial Characteristics
While these metrics provide some guidelines, perhaps more importantly, lower middle-market companies tend to be identified by their entrepreneurial nature. The operations often are less sophisticated than found at larger companies, and:

Control resides among family members, an individual or small group of shareholders;
Owner/CEO responsible for multiple management positions, such as finance, operations and/or sales and marketing;
Does not have an independent board of directors;
Financial statements are not audited or reviewed;
There is not a written strategic growth plan;
Sales are concentrated in the hands of a few large customers; and
Profit and loss statements are analyzed more closely than balance sheets.

At GMB Business Advisors, we apply experience gained from closing over 150 lower middle-market transactions with an aggregate value of approximately $1.5 billion to position these types of characteristics within the context of a transaction, thereby achieving superior results. Our relationships with a broad array of strategic and financial buyers and capital providers specifically focused on this sector contribute to successful, efficient transactions.

To learn how GMB Business Advisors can unlock the value in your company,
please contact Alan Mayer, Managing Director, at 303.592.4844.

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