The middle market is gaining momentum; indicators are pointing to increased M&A activity. A vital source of deal flow for private equity, the middle market (defined as deal values less than $500 million) accounted for nearly 85 percent of sponsor deal flow in 1Q14, reported market research firm PitchBook, and the lower middle market (defined as deal values less than $100 million) accounted for nearly 35 percent.
One private equity firm with a pulse on the middle market is The Riverside Co., which focuses on the lower end of the middle market. Riverside was active in 2013, tallying 22 acquisitions and 11 sales during the year. In an interview with Mergers & Acquisitions, Riverside co-CEO Stewart Kohl called 2014 “… the first ‘new normal’ year,” looking back on an economic recession which “… disrupted just about every market.”
A revival in the credit markets and a strong fundraising environment of late will provide the foundation for increased deal activity. Absent economic news, which could hamper deal flow, Kohl says we’ll see “a very active second half of 2014 in M&A, and therefore a strong year.”
M&A activity in manufacturing is poised to surge over the next 12 months, predicts Mergers & Acquisitions, based on results from its recent Mid-Market Pulse index. Deal flow will outpace other sectors, supported in part by “the rise of medical devices and other innovative technologies” that are boosting U.S. manufacturing activity, according to survey findings. Low energy costs and reshoring are long-term drivers expected to sustain a U.S. manufacturing advantage.
In the broader market, overall LBO volume so far in 2Q14 reached the highest quarterly level since 4Q07, according to Thomson Reuters LPC. Completed and in-process LBO volume reached $37 billion through early May — 84 percent higher than 1Q14 and the sixth highest quarter since 2004.
Deal of the month
U.K.-based Hikma Pharmaceuticals PLC acquired Bedford Laboratories of Bedford, Ohio. Bedford is a generic injectables company with the third largest portfolio of generic injectable products in the U.S., according to a Hikma press release announcing the transaction. The $300 million purchase price consists of $225 million in cash and up to $75 million in an earn-out payable over a period of five years based on performance objectives.
Bedford’s product portfolio and deep pipeline is expected to significantly increase the scale and scope of Hikma’s growing U.S. injectables business, says CEO Said Samih Taleb Darwazah.
“The large number of high value, niche and differentiated products we are acquiring will strengthen our market position in the U.S. and will benefit patients by bringing back products to the market that are currently in short supply,” he says.
Bedford operates as a subsidiary of Ben Venue Laboratories, a member of the Boehringer Ingelheim Group of Companies.
Andrew K. Petryk is managing director and principal of Brown Gibbons Lang & Co. LLC, an investment bank serving the middle market. Contact him at (216) 920-6613 or [email protected].
