Q1 2020 Middle Market Update

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GCG’s Q1 2020 Middle Market Update provides an overview of the latest trends in the market, including recent performance of select sectors and the state of the middle-market M&A environment.

Key findings include the following:

    • GCG’s proprietary middle market industry sector performance index has shown negative annual performance results for each industry. As has been generally consistent throughout the past year, the middle market performed well below the large cap stocks as measured by the S&P 500 index.
    • Real Estate, which was one of the few middle market sectors which was outperforming the S&P for most of the past year, turned sharply negative in the past month. Nevertheless, the real estate sector was the best performer during the past 12-months dropping 27.7% year over year. While many sectors were marginally positive or negative for most of the last 12-months, each sector dropped sharply in March, 2020 as a result of the global pandemic of the COVID-19 virus. The Industrials & Manufacturing and Consumer Goods sectors dropped 56.6% and 53.5% in the same 12-month period. While all sectors experienced declines, Consumer Goods and Industrials and Manufacturing were the worst performers. The performance of both sectors was impacted by tariffs throughout the year followed by the COVID-19 pandemic. As a result, both are experiencing supply chain issues. Additionally, the continued underperformance of the small cap stock sector compared to larger cap stocks has been consistent throughout the past 12+ months.
    • Middle market public company trading multiples have dropped considerably during March 2020. Prior to March, the EBITDA multiples in the middle-market ranged between 10.0x and 10.4x EBITDA. The March market decline has reduced these multiples approximately 20% with the overall trading multiple closing at 8.2x EBITDA at the end of March.  Revenue multiple showed a similar decline dropping from 2.0x revenue prior to March to 1.6x revenue by the end of March.
    • Middle market public and private company transaction deal volume and value for Q1 2020 exhibited the worst performance of the previous five quarters, though deal value and volume were both only about 13% lower than Q2 2019 (the previous volume low). Deal value decreased 7% during the last quarter, while deal volume declined 15%. The decline was due to the increase in uncertainty surrounding both the recent oil price crash and the COVID-19 virus. The uncertainty resulting from the pandemic and the global economy will continue to put downward pressure on the volume and value of middle market M&A.

Click here for the full update.


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