Sourcing new deals has become more challenging due to an increased level of capital chasing a limited number of quality deals. As a result, lower middle-market companies have become more attractive to buyers. However, these companies tend to invest less in their finance and accounting operations, as well as their financial reporting infrastructure, and they have lean management teams. This can pose challenges for potential acquirers.
Sell-side due diligence is gaining traction with owners of middle market companies. The increasing number of transactions that collapse mid-deal or at a reduced valuation is motivating organizations to conduct sell-side diligence proactively to reduce the possibility of unwelcome surprises during the sale process that could derail the transaction.