I had the privilege of attending the AM&AA conference in Orlando last week. With all due respect to my friends at ACG, we find this bi-annual conference to be most effective. It brings together a manageable number of middle market finance professionals who share the objectives of sourcing more deals and learning from each others’ experience.

I enjoyed over 40 one-on-one meetings with some of the best investors in the middle market. Anecdotally, here are some of my impressions:

• Some established P/E investors (notably of the control/majority-equity type) are choosing not to participate in buy-side auctions. This seems to be a continued reaction to the high purchase multiples about which equity investors have been complaining for some time. We think that investors with this strategy are enjoying a higher number of deals in the lower middle market, and believe they don’t have to participate in an auction. Where an investor has adopted this strategy, they expend time seeking those proprietary deals either from relationship bankers (like Highland Ridge) or directly from business owners.
• While investors always try to put a positive spin on market activity, it seems that, anecdotally, there actually have been marginally more closed deals in the market. Pitchbook’s recent report report bears this out for the core middle-market (U.S. Middle Market Report 4Q2015). As we’ve highlighted in the past, P/E investors talk about more add-on acquisitions than new platforms.
• Since the last AM&AA conference, there has been the usual shifting of personal to/from larger firms, and professionals leaving an established firm to start their own. I found it interesting that these spin-offs were raising capital, and doing so successfully. I also met several new (or perhaps “more active”) family office investors with capital to invest. All this confirms that there continues to be plenty of capital in the market to acquire and finance worthy businesses.

As always, contact me with any questions.