What Impacts Lower Mid Market Deals

TL;DR

This video discusses common deal killers in lower middle market deals, including basing valuation on revenue instead of EBITDA, excessive debt, lack of trust in the team or financials, and disorganized financial and operational systems.

Transcript

louis is richard wilson i'm coming to you from malaysia today I'm actually here in Kuala Lumpur to speak at a family office conference and meet a few potential clients and I wanted to talk to you real quick about what kills lower middle market deals so I've been working a lot of direct investment co investment activity on behalf of our by side clie... Read More

Key Insights

• 😘 Lower middle market deals should be valued based on EBITDA, not revenue.
• 😘 Excess debt and undisclosed off-balance sheet activities can kill lower middle market deals.
• 😤 Trust in the team and financials is crucial for successful deals.
• 📫 Disorganized financial and operational systems can raise red flags for buyers.
• 🤝 Family businesses seeking liquidity events or growth capital should focus on cleaning up their financials to attract better deals.
• ⏳ Lower middle market deals tend to be valued within a range of three to seven times EBITDA.
• 😘 Industry, business life cycle, and competition can impact the multiple in lower middle market deals.

Questions & Answers

Q: What is the main factor that kills lower middle market deals?

One of the main factors that kill lower middle market deals is basing valuation on revenue instead of EBITDA. It is important to focus on a reasonable multiple based on the previous year's EBITDA.

Q: How does excessive debt impact lower middle market deals?

Excessive debt can be a deal breaker in lower middle market deals. It increases the financial risk and can make it harder for potential buyers to see value in the business.

Q: How does lack of trust in the team affect lower middle market deals?

Lack of trust in the team can lead to deal breakers. Buyers want to have confidence in the management team's ability to sustain and grow the business.

Q: Why are disorganized financial and operational systems deal killers?

Disorganized financial and operational systems raise concerns about the reliability of the financials and the long-term viability of the business. Buyers want to invest in businesses that can be managed and grown institutionally.

Summary & Key Takeaways

• Lower middle market deals can be killed due to incorrect valuation methods, such as basing it on revenue instead of EBITDA.

• Excess debt and undisclosed off-balance sheet activities can also lead to deal breakers in lower middle market deals.

• Lack of trust in the team or financials, as well as disorganized financial and operational systems, are other factors that can kill such deals.