Lower Middle Market Pursuits: Record Breaking First Half Underscores LMM Resiliency

There’s no shortage of headwinds facing buyers and sellers in 2022. Inflation, an increasingly hawkish Fed, recessionary worries, and public market volatility are among the more pressing threats dealmakers are digesting in 2022. Yet, based on the level of activity over the Axial platform – a proxy for lower middle market deal flow – buyers and sellers in this area of the market aren’t yet moving to the sidelines amid the turbulence.

In fact, our latest Lower Middle Market Pursuits report documents a record-breaking first half, both in the number of new targets brought to market so far in 2022, as well as in the number of buy-side mandates initiated by prospective acquirers. To wit, sell-side activity grew by 8% in the first half of the year, while buy-side activity ballooned by 30%, year over year.

If the deal flow metrics seem to imply an unbridled enthusiasm, the pursuit rate data in the first half conveys a far more grounded narrative. Collectively, in the second quarter, the average pursuit rate on a TTM basis sank to its lowest level in two and a half years, suggesting that prospective acquirers are indeed becoming more discriminating. 

A flight to quality was also evident, as the assets going to market generally had better fundamentals based on the average profit margins, while the pursuit rate data conveyed a preference among buyers for assets with higher earnings. Meanwhile, even as tech stocks are among the most volatile in the S&P 500, tech targets in the lower middle market continue to see heightened demand.

Download The Summer 2022 Lower Middle Market Pursuits Report

This only scratches at the surface of the data and analysis presented in the summer edition of the Lower Middle Market Pursuits report, which offers a snapshot of how Axial’s more than 20,000 active members are responding to the abrupt shifts in the economy. The report also includes on-the-ground commentary from Rick Thomas, CEO of FOCUS Investment Banking; Carl Cordova, Managing Director at Auctus Capital Partners; David Eshaghian, Founder and CEO of Panther Equity Group; and Jessica Ginsberg, Managing Director at LFM Capital.

While it remains to be seen how the record-breaking activity at the top of the funnel will ultimately translate into completed transactions, the data offers proof that buyers and sellers continue to hustle even during a period – in the spring and summer – when activity takes a seasonal pause.

We hope you enjoy the report! 

Click here to access the Summer 2022 Pursuits Report