Even though mergers and acquisitions in the lower middle-market have decreased by about 40% from 2007 levels, the percentage of deals happening in the lower middle-market is increasing. Since most private equity groups use leverage to purchase companies and because lending was low in the first two quarters of 2009, both acquisitions and valuations were down but more resilient than the rest of the market. Even though the news has been covered with poor economic news and issues with Wall Street and Main Street, the lower middle-market truly has been affected less than other market segments and is still the most attractive segment for most private equity groups. In addition, strategic companies still do have money and are always looking to make acquisitions, sometimes you have to look for them.

Our prediction is that valuations in the lower middle-market will start increasing in the next year because of Private Equity Groups. Private Equity Groups do have a lot of capital to deploy, but they do want to use leverage to be able to get the best return on their investors' dollars, keep income taxes low, and grow the companies they purchase. With a reduction in capital, PEGs have had to use more fund money to purchase companies and thus valuations have dropped. Recently, we have noticed increases in credit liquidity, which we believe will continue to rise. In addition, PEGs are required to deploy the capital given by investors into existing or new portfolio companies to give their investors the best return on their investment. Since there is a large amount of capital chasing few companies "for sale", we feel valuations will soon return especially as profits begin to increase again.

Given that it takes a year, on the average, to sell a lower middle-market company, if you seek an exit in the next year, now is the time to talk to an M&A advisor or intermediary like Orion. Even if you plan on exiting in about 2-3 years, now is a great time to let us help you increase the value of your company and decrease the taxes because of your sale.