The most important factors for companies to consider when pursuing M&A activity in the lower and middle market in 2024 are:

     1.Valuation Trends:

Valuation multiples have moderated from the peak levels of 2021 but are expected to stabilize and potentially increase in the second half of 2024. This provides an opportune time for sellers to transact.

Buyers should be aware that while valuations have declined, they remain above the10-year historical average, so they need to be strategic in their acquisition targets.

     2.Financing Conditions:

Interest rates are expected to stabilize or even decline in 2024, creating a more favorable financing environment for deal making. This will benefit both strategic and financial buyers.

The availability of private credit and equity capital to support transactions remains strong, with private equity firms holding record levels of dry powder.

     3.Regulatory Environment:

Increased regulatory scrutiny and uncertainty around policy changes have made dealmakers more cautious, particularly for transactions involving strategic buyers.

However, a potential shift towards lower regulatory enforcement could help boost M&A activity in the lower and middle markets.

     4.Industry Trends:

Certain sectors like technology, healthcare, energy/utilities, and life sciences are expected to be M&A hotspots, driven by factors like industry convergence and technological disruption.

Companies should carefully evaluate opportunities in these high-growth, in-demand industries.

     5. Seller Preparedness:

Sellers who can demonstrate strong financial performance, healthy margins, and scalability will be most attractive to buyers in the 2024 M&A market.

Proper planning and preparation will be critical for business owners looking to maximize value from a transaction.

Companies pursuing M&A in the lower and middle market in 2024 should carefully consider valuation trends, financing conditions, the regulatory environment, industry-specific dynamics, and the preparedness of potential acquisition targets.

June 21, 2024

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