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Where Is The Mid-Market?
First, a definition of "Mid-Market" is required. VR considers the mid-market to be businesses that have grown beyond single manager entities to significant regional or even national, stature. By our definition, this usually implies value between $1 million to $25 million. Most of the mid-market is made up of businesses built around a single product area and its natural extensions; therefore, they are not usually multi-market companies with a group of divisions. This characteristic means the business is a stand-alone unit that does not lend itself to being sold in pieces.
Who Are The Sellers?
Owners of mid-market enterprises are a variety of personas. Generally, these businesses can be categorized as closely held private, family or small group, or as an independent subsidiary or division of a larger organization. Owners of a closely held mid-market company usually have invested completely in the business, both financially and emotionally, and feel that the sale of their company is a very significant event in their lives. This is distinct from the situations in which the corporate officers of a Fortune 500 company dispassionately execute a strategic shift by a redeployment of global resources. It is important to understand that both of these types are participants in today's mid-market transactions and are dealt with in suitable manners.
What are the types and sizes of businesses
The rules that govern the sale of public companies like Ford, Microsoft, or General Electric are radically different from the rules that control the sale of privately held enterprises. Successful business sales are dependent upon managed expectations for both the buyer and seller. This brief overview is designed to help you understand the rules that control the purchase of the three major categories of businesses.
VR has been supplying Valued Representation to privately held businesses since 1979. Our international organization takes pride in affording to these firms the Valued Representation typically available to Wall Street companies, but impossible to obtain as a private enterprise.
VR Has Sold More Businesses In The World Than Anyone.®
We have broadly summarized the market categories and business types below. Your VR professional intermediary can explain how this applies to you and your transaction in detail.
Business and Industry Types
Most businesses are grouped into broad industry categories such as retail, manufacturing, distribution, services and construction. Within each category there are dozens of subcategories which more specifically describe the business and its market. Businesses are also grouped into market categories based on the size of the company.
Market and Transaction Categories
Publicly Traded & Large Businesses
These are the publicly traded companies traded on stock exchanges around the world and large businesses held by institutional investors. The rules of their acquisition are taught in business schools, and their mergers and acquisitions are typically handled by investment banking firms. These companies have the objective of maximizing shareholders value.
Mid-Market Companies
These range from substantial privately held companies with earnings from the several hundreds of thousands of dollars to earnings in the millions of dollars. Comparisons to publicly traded companies and large businesses for sales purposes, however, are misleading. Private companies do not actively trade their stock; consequently there is little if any liquidity to their stock which factors into the market value of the business.
Small Businesses
These businesses may vary from situations where the owners play the central management and employee roles, to companies that demonstrate consistency in earnings and have solid organizational structures. In most small businesses, owner involvement in the day-to-day management is typical. Small businesses are the backbone of the American economy and the marketplace for their sale is active. The greatest obstacle to the successful sale of these businesses is overcoming the buyer's perception of risk.
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Publicly Traded / Large Businesses |
Mid-Market |
Small Businesses |
| Market Category |
Large publicly traded |
Substantial privately held |
Closely held & entrepreneurial |
| Annual Sales |
Typically over $100 million |
Over $1,000,000 |
Up to $1,000,000 |
| Earnings |
Measured in tens or hundreds of millions, EBITDA* |
$250,000 to small millions DE** |
Less than $250,000 DE** |
| P/E Ratios |
Driven by market conditions, ranges from 10 to 25 times earnings. |
Typically 3 to 5 times EBITDA or 2 to 4 times DE |
Typically 2 to 3 Times DE |
| Terms of Sale |
Cash or equivalent, often complex transactions involving stock swaps and mergers. |
Typically 20% to 25% down payment with bank (SBA) financing plus a seller note. |
Down Payment of 1-2 Times Earnings + sellers note, bank financing (SBA) is often available. |
| Management |
Professional with many layers of management |
Structured & disciplined, owner involvement varied |
Owner is primary element in company operations |
United States Business Demographics
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25 million businesses in the United States
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97% of US businesses are under $10,000,000 in annual sales
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79% of US businesses are under $1,000,000 in annual sales
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62% of US businesses are under $500,000 in annual sales
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52% of US GDP is from small business
*EBITDA: Earnings Before Interest Taxes Depreciation & Amortization
**DE: Discretionary Earnings
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