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High hopes for lower mid-market as deal volumes steadily increase - Christopher Clark

Christopher ClarkQuarterly transaction volumes have improved in Q1 2011 against H2 2010 and are now back to the levels seen throughout 2009 according to the latest issue of Private Company Price Index (PCPI). This has largely been driven by an increase in lower mid-market deals. However, the recovery is not vast and in general over the last two years deal numbers have continued to oscillate around 500 deals per quarter. 

The figures from Q1 2011 reflect cautious but steadily growing investor confidence and appetite to support businesses at the lower end of the mid-market. Investors are keen to invest in smaller companies that have managed to survive the economic downturn and are now well positioned to embrace growth opportunities over the next few years but require expansion capital to do so. However, it is a surprise perhaps that volumes have not been higher this quarter given the optimism and large pipeline of deals currently being worked up in the market. We would expect this pipeline of deals to filter through later in the year, increasing deal volumes.

For the remainder of 2011 I would expect to see continued strong activity in the lower end of the mid-market, as investors look for high growth companies with innovative business models. In addition, private equity firms with investments acquired in the early to mid‐2000s, will be looking to exit these investments over the next couple of years, which will further strengthen the market. 

In summary, we are seeing greater stability in deal volumes and improved confidence in the economic and business environments which will aid deal activity. The healthy pipeline of work in the industry also supports this and indicates that the number of deal completions is expected to stabilise or moderately increase during the remainder of 2011. 

Please click here to view PCPI Q1:

http://static.bdo.uk.com/assets/documents/2011/05/Private_Company_Price_Index_Q1_2011.pdf

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