A brief description of the history of recent deal pricing is necessary to put things in perspective.

During 2006 and the first half of 2007, the greatest market bubble in middle-market deal pricing in over 50 years occurred. Any middle market executive that had plans to sell their company within the next 20 years should have sold then. However, those pricing levels will probably not be seen again.

During the second half of 2007 and first half of 2008, deal pricing reverted to normal levels. However, as the business downturn started in the third quarter of 2008, which led to the “great recession” - the period encompassing from the fourth quarter of 2008 to the start of the third quarter of 2009 - deal pricing collapsed. In fact, 2009 was the first year the world economy contracted since the 1930s. Fortunately, although economic and market conditions were awful, they never deteriorated to the levels realized during the Great Depression. However, middle-market deals, defined as transactions with values between $5 million and $250 million, were few.

Those that were completed were usually at deeply discounted prices. This pricing level continued until the start of the third quarter of 2010. At that time deal activity and pricing started to improve.

Return to normal

As we begin 2011, deal pricing is making strides to return to normal levels and middle-market deal activity, which is not necessarily comparable to large-deal activity, has greatly improved. However, many acquirers still believe they can “steal” companies, primarily due to the depressed earnings most companies realized during the recession. Many sellers are susceptible to accepting these discount prices, as the scars created by the recession make them concerned they won’t be able to sell their companies. However, by the latter part of 2011, expect middle market deal pricing to increase to above normal levels.

During 2011, as many acquirers use the depressed earnings realized by a seller during the two year period ending June 2010 as justification for a substandard offer, it is imperative for middle-market executives to understand that their company is a long-term asset whose sale price should not be impacted by short-term transient considerations. Furthermore, any serious acquirers would not anticipate earnings returning to 2009 and 2010 levels in the foreseeable future, or they would not be interested in buying companies.

Middle-market executives must remember that the true and most significant determinant of a transaction price is a company’s expected future earnings before interest, taxes, depreciation and amortization (EBITDA) and the risk in achieving that EBITDA from the business foundation given an acquirer. This is an acquirer’s major consideration in determining a seller’s value. Any other factors are merely used for negotiating leverage to justify an unwarranted discount price.

Consequently, you should not entertain any discussions regarding your earnings during the 2 year period ended in June 2010 being a factor in establishing a transaction price. They simply are not a consideration, and you should demand they be treated accordingly.


The optimum time to sell a company should be the latter part of 2011 or 2012. This is due to a number of factors:


Some of these concerns, which could have a major negative impact on the world economy are:

Premium prices

For a middle market seller to obtain a premium-priced deal with terms that fully insulates them from post-closing liability, it is imperative they find an investment banker or acquisition consultant that has certain capabilities and characteristics. Sellers should be looking for the following things in their investment bankers: