Mid-Year Update for the Middle Market - 2018

Overall, the middle market is experiencing strong performance in 2018. According to the National Center for the Middle Market, companies in this sector reported employment growth rates of 6.3 percent and revenue growth rates of 8.4 percent -- both at the highest level within the past year. The center also notes that confidence in both the global and local economy is at an all time high in this sector, which is likely encouraging M&A activity and growth.

Some of 2018's Notable Mergers and Acquisitions

M&A activity in the middle market was hot and heavy in the first two quarters of 2018, fueled in part by more positive economic outlooks, the availability of investment capital and rising values. Here's a look at some of the M&A activity across various industries in this sector.

• Camping World Holdings Inc. took a step toward larger competition by agreeing to acquire Nashville-based Cullum & Maxey Camping Center in June. Camping World is attempting to spread its geographic reach through acquisitions rather than building from the ground up in new cities.
• Riverside Partners, a private equity firm, acquired Calero Software in May. Calero Software develops expense management software and is looking to the PE firm to provide software, technology and telecom experience to aid in expansion.
• Colgate, the well-known dental care company, continued its expansion into other health and beauty categories with notable acquisitions in March. The company acquired PCA Skin and EltaMD -- both are skin care companies. Colgate looks to capitalize on the aging population with some of these expansions, and it isn't the only one. Estée Lauder and L'Oreal made similar M&A moves in 2018.
• As early as January, brands were heating up the middle market with M&A activity. Starbucks divested itself of Tazo tea, with Unilever acquiring the brand. The move is strategic for both parties: Starbucks intends to close Teavana locations (it acquired Teavana in 2012) and promote the Teavana products within existing coffee shops to streamline processes. Unilever, which owns Pure Leaf and Lipton, is looking to expand in the premium tea market in America.

Those are only a few highlights of hundreds of M&A actions taking place across the middle market in 2018. Reasons for activity in the first two quarters include companies divesting themselves of assets that don't fit with future branding plans, companies looking to find footing in new markets, brands seeking financial or other support, and investors looking for great deals.

Middle Market Outlook for the Second Half of 2018

While fear always holds some investors or brands back from M&A steps, confidence remains high and experts believe the middle market will continue to bustle during quarters three and four.

Valuation continues to be a driving force, with buyers willing to act quickly to obtain the good deals they come across. A Citizens Commercial bank survey noted that more than a third of sellers report being bullish on rising values -- a trend that continues from 2017 -- and around 41 percent of buyers say they expect to pay more to acquire assets that meet their criteria.

With both buyers and sellers interested in and motivated to achieve M&A activity, one challenge in the latter half of 2018 will be to curtail rising expectations. The risk is that valuation expectations, particularly on the part of sellers, will price many buyers out of the market, leading to a bounce-effect that drives M&A in the final quarter to lower numbers than those seen in the first part of the year.