The number of middle market M&A deals is up reflecting a rebound in valuations from 9 months ago.  According to a recently published report by GF Data Resources, during the second quarter the number of deals, versus both the same period a year ago and the preceding quarter, grew by over 70% and 60% respectively. The average enterprise value multiple paid for companies during the last quarter was 5.6x EBITDA. This multiple marks an improvement over the preceding quarter.  GF Data Resources' database is compiled using activity from 154 private equity firms.

Also apparent from this report is that there is a significant gap in valuation multiples between mid-sized companies and smaller companies. Smaller companies with EBITDA of $10 million or less yielded an average multiple 4.8x EBITDA, while companies with earnings $100 million or more were sold at approximately 7x Ebitda.

Looking ahead, MidCap Advisors believes multiples will continue to trend higher. Based on our research, average multiples hit a trough in the third quarter of 2009, at 5.1x EBITDA.  However, since then they have showing slow but steady gains as the credit crisis eases and the overall economy slowly recovers. However, it is likely that the increase in multiples will be much slower for companies with EBITDA below $3 million.