Is a 4-6x Exit Multiple Almost Guaranteed for Middle-Market Roll-Ups?

November 18, 2024

by a searcher from Loyola College in Maryland in Baltimore, MD, USA

I’ve been exploring roll-up strategies and am curious to hear from those with direct experience in the middle market. It’s often said that if you can successfully consolidate companies and reach $10M+ in EBITDA, you can almost automatically sell for a 4-6x multiple—or higher—based on supply and demand dynamics and the sheer number of funds chasing deals in that range.

Does this align with your experience? Are there nuances or risks to watch out for when positioning a roll-up for a middle-market exit? I’d love to hear insights, particularly around what buyers are looking for in these larger acquisitions and whether the multiple is truly "guaranteed" or dependent on other factors.

Looking forward to learning from the community!

Reply by a searcher
from University of Virginia in Los Angeles, CA, USA

As a general rule, a more scaled asset is typically going to sell for a higher multiple than a less scaled asset. And there is a ton of dry powder out there motivating middle market PE firms to buy something. However, a PE firm might pass on a category or your roll-up for a number of different reasons like revenue visibility, how well you integrated the businesses (the hardest part of a roll-up IMHO), whether there is room for more M&A for them and their potential buyer, CapEx requirements, etc.

I ran a thesis development process for a LMM shop and have worked on buying and integrating these businesses at a fund and holdco level, so happy to chat more if helpful. Just shoot me a message.

Reply by an investor
in Chicago, IL, USA

I wouldn't necessarily count on that being the case, but as a general valuation trend multiples do increase as you move higher and out of the middle market. The rationale for multiples increasing isn't about the size of the roll-up but about the stability of cash flows that come with size, meaning that the investor can be more assured that protection and have a clear pathway to growth - it's all about removing risk or increasing the strategic opportunity for the buyer.

+12 more replies.

Join the discussion