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Middle-Market PE + M&A Update Q3 2022

November 10th, 2022

Click Here to Download the Middle-Market PE + M&A Update Q3 2022

Report Overview

The Middle-Market PE + M&A Update is a quarterly publication for the Upstate NY deal-making community, presented by the Upstate Capital Association of NY and The Bonadio Group, reporting on transaction activity regionally and in the context of national trends. This report provides information and insights on types of deals, multiples, and private equity activity.

Note: For purposes of this report, we define the “middle-market” as companies with enterprise values between $10 and $250 million. Some third-party data sources do not present deal data in that size range on a standalone basis, to avoid excluding deals where transaction values were not disclosed (which is often the case for transactions in this size range). We reference overall trends as a proxy for what’s happening in the middle market.


About Us

Upstate Capital is Upstate NY’s membership network for private equity investors, M&A professionals, venture capital investors, CEOs and business owners, entrepreneurs and ecosystem support professionals. Our mission is to increase access to capital for companies and deal flow for investors across New York.

The Bonadio Group is a top 50 CPA firm delivering a full spectrum of services to help clients address financial and business challenges. Combining deep technical expertise with keen understanding of our clients’ businesses, we offer knowledgeable commentary on a broad spectrum of industry trends through written articles, in-person seminars, webinars, thought leadership & more.


M&A Insights

Q3 2022’s M&A market results illustrate that heightened uncertainty continues to impact M&A activity in the United States. The economic contraction in the United States continued in Q3 2022 impacted by inflationary and borrowing rate pressure, labor and wage challenges, consumer spending variability, lingering effects of COVID-19, international conflicts, and other factors).

Rising interest rates are a significant driver in current private equity and leveraged M&A deals. Floating rates for loans on leveraged buyouts averaged 4.8% in February before doubling to 9.8% in September. The Federal Reserve is on course for five interest rate hikes. At three full percentage points in just six months, this has been the steepest backup since the early months of the 1977 to 1981 cycle, which saw the federal funds rate eventually climb to nearly 20%.

Though the past twelve months have been volatile, it is certainly not all “doom and gloom”. There is still very much an active M&A market in 2022. The combined forces of fiscal and monetary stimulus unleashed a fury of deal activity for most of 2020 and all of 2021, with certain areas of capital markets doubling—and sometimes tripling—from pre-COVID-19 levels. It is no surprise that the volume from 2020 and 2021 is not being repeated. With that in mind, Q3 2022 activity is relatively flat when compared to the “old” normal of 2017 – 2019. As such, the Q3 2022 deal volume decline may be viewed more as a “reset”. There has been a steady decline since Q4 2021, which reported 2,836 deals. Deal count in the United States reported by Pitchbook was 1,482 in Q3 2022.

Private equity and corporate buyers still hold plenty of capital to fund M&A deals. That capital creates continued opportunities for M&A investment. Whether a company needs to transform its capabilities, supply chains or go-to-market approach, the market is impatient and one of the fastest ways to accelerate transformation is through M&A. The aging population of middle-market business owners also continues to drive the supply of middle-market businesses available for sale, and fierce competition for those businesses continues.

Strategic add-on M&A deals have been increasing as a proportion of buyout activity. As of Q3, the number of add-ons as a share of buyout deals reached a new high of 77.9% despite the consecutive three-quarter decline in the absolute number of add-ons. Private equity firms employ add-on strategies to scale their existing platform investments or to create synergies that can reduce costs or add revenue. Smaller acquisitions tend to have less of a valuation disconnect between buyers and sellers, thus allowing sponsors to tack on to their platform companies with relative ease. Buy-and-build strategies also allow private equity firms to average down the portfolio company’s combined multiples through the lower multiples of the smaller acquisitions. Opportunities for add-on acquisitions are more prevalent in the middle market because the industries in which they operate tend to be more fragmented and ripe for consolidation.

Deal activity in Upstate New York has not experienced the same downward trend as the national scale. In Q3 2022, 54 reported middle-market M&A deals closed in Upstate New York, compared to 52 in Q2 2022 and 54 in Q1 2022. There are a significant number of privately-owned middle market businesses in Upstate New York that fit the bill for a strategic or “add-on” M&A investment. There continues to be a high demand for these types of businesses, resulting in the steady deal flow in Upstate New York.

While the long-term impacts on the M&A market remain to be seen, recent events are certainly noteworthy to buyers and sellers for the foreseeable future. The following pages illustrate the middle-market M&A trends in the United States and Upstate New York through Q3 2022.


Q3 Deal Activity

Overall, deal volume has been steadily declining in the United States, but Q3 activity has stayed flat compared to the pre-COVID “normal”. The markets continue to respond to the economic and geopolitical uncertainty of the United States and abroad. While 2021 was a record year for deals, 2022 can be seen as shift back to the normal ebb and flow of market trends. One of the driving forces for the supply of middle-market businesses available for sale is the aging population of middle-market business owners.

Quarterly Deal Activity

Source: Pitchbook

The Bonadio Group


Middle Market Multiples

The Bonadio Group


Upstate NY Trends

Deal activity in Upstate New York has remained stable going from Q2 to Q3 2022. Approximately 69% of the deals closed in Q3 2022 were in either the Rochester, Syracuse, Albany or Buffalo regions. The information presented in the tables below includes data for all M&A transactions, regardless of size, in Upstate New York.

Quarterly # of Deals (2019 – Q3 2022)

Source: CapIQ

The Bonadio Group


Q3 2022 Deals by Region

Source: CapIQ

The Bonadio Group

Q3 2022 Deals by Industry

Source: CapIQ

The Bonadio Group


Differences between Business Valuations and M&A Assessments

We think it’s generally safe to say that business owners are interested in the value of their business. However, when it comes to valuing an illiquid asset, there is more than one way to go about it. The typical business owner may think, “If I want to know the value of my business, I need to hire a valuation firm to prepare a formal valuation”. While that is one option, there are others to consider.

When thinking about a formal business valuation, business appraisers typically think in terms of Fair Market Value, which is defined by IRS Revenue Ruling 59-60 as “The amount at which the property would change hands between a willing buyer and willing seller, when the former is not under any compulsion to buy, and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts”. By definition, Fair Market Value does not consider synergies of specific potential buyers. Instead, it contemplates a hypothetical buyer and assumes the business will continue to operate as a standalone business. In the context of a potential M&A transaction, both of these assumptions can (and should) be challenged.

There are many situations (some of which are explored below) where Fair Market Value is the relevant standard of value. However, when it comes to a business owner wanting to understand what real-world market participants may be willing to pay for their business, we think “Strategic Value” is the more relevant standard of value. In other words, we’re most interested in what the “best” potential buyers would be willing to pay for the business in a real-world transaction. And we further believe that the most appropriate individuals to make that assessment are professionals that regularly engage in real-world M&A transactions.

Business Valuation

As described above, the typical business valuation tries to assess the hypothetical fair market value of a business (or a partial interest in a business). These formal valuations are normally performed by business appraisers or valuation specialists who are often concerned about whether or not their findings/assessment will hold up in court, under IRS scrutiny, or under other regulatory review. That concern makes sense when you consider the most common uses for a formal business valuation:

  • Estate and Gift Tax. If an owner of a business passes away or decides to gift stock of a private company, a formal business valuation is typically necessary to determine the tax implications of the gift.
  • Matrimonial/Divorce Matters. Typically, the property of spouses going through a divorce is divided. As such, it is important that each asset (including a privately-owned business) be ascribed a value. Since there are often attorneys involved, a formal business valuation is the approach most typically employed.
  • Shareholder or Buy-Sell Agreements. These agreements often dictate the price at which shares of a business will transact between shareholders in the event of death or retirement of a shareholder. One common approach (but not the only approach) used in these types of agreements is to require the use of fair market value, as determined by a formal business valuation.
  • Stock Option Pricing. The internal revenue code requires that incentive stock options be granted with strike prices not less than fair market value at the date of the grant. As such, a formal business valuation is often utilized to determine fair market value of the underlying stock.
  • ESOPs, Phantom Stock, and SARs. It is common that employee stock option plans (ESOPs), phantom stock, and stock appreciation right (SARs) require a formal business valuation to determine the price at which holders of these instruments must transact.

M&A Assessments

Notably absent from the list above is the situation in which a business owner just wants to know what their business might be worth if they were to take it to market and sell it.

As M&A transaction professionals, we are often engaged by clients to tell them just that. When doing so, we evaluate the business through the lens of (the best) potential buyers. We are not formal “valuation guys”, but rather professionals that complete real-world M&A transactions for a living. We take what we see from real-world M&A transactions and apply it to their business.

In determining the potential value of a business in the real-world, we assess both qualitative and quantitative factors. Key qualitative factors include things like the current state of the M&A markets, the strength of the management team, customer/vendor concentrations, employee turnover, competition, and barriers to entry, among others. Key quantitative factors include things like financial performance and recent transaction multiples in comparable M&A transactions.

While we do assess the potential value of the business in the real-world, we don’t stop there. We also provide actionable insight into how potential buyers will perceive the strengths and weaknesses in the business, which we refer to as Valuation Enhancers and Valuation Detractors. We also identify which valuation detractors will likely have the most meaningful impact if they were addressed prior to taking the business to market, as well as assess the overall “market readiness” of the business.

It is important to note that when going to market, market participants will always determine valuation. However, before starting down that path, we believe an M&A Assessment often provides more meaningful information than a formal business valuation.


Formal business valuations and M&A Assessments are both useful, but for different reasons. If a business owner needs to know the value of their business for one of the reasons listed above, a formal business valuation is likely most appropriate (and maybe even required). However, if a business owner is considering an exit or interested in knowing the strategic market value of their business, then we believe an M&A Assessment is more appropriate.

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.

The Bonadio Group

Jeff Lewis

IBTA Team Leader/ Partner



Upcoming Events


2022 Annual Awards Celebration

December 7, 2022 in Rochester, NY and online. Register at UPSTATECAPITAL.ORG

The Upstate Capital Association of New York is hosting the 7th Annual Celebration & Awards event to celebrate the investment ecosystem across New York. This event will be attended by more than 200 entrepreneurs, CEOs, executives, professional advisors, investors and capital providers. Find out who walks away with the coveted “Dealmaker of the Year” Award.

Join us as we raise a glass to congratulate companies and colleagues for their successes, and start valuable relationships to cultivate in the coming year.

M&A Advisor Series

February 2, 2022 in Buffalo, NY and online. Register at UPSTATECAPITAL.ORG

Upstate Capital’s M&A Advisor Event Series facilitates knowledge and connections for service providers and business owners related to merging and acquiring companies.

  • Professional advisors gain knowledge and build personal networks that are helpful in advising clients and generating new business
  • Business owners gain insights into principles and considerations, from transaction professionals and from CEOs and executives who have gone through M&A transactions.



Bonadio Investment Banking

The Bonadio Group comprises various accounting, tax, consulting, and personal financial services entities, including Bonadio & Co., LLP, a nationally-ranked top 50 CPA firm founded in 1978. The Bonadio Group has over 850 team members across 10 offices in New York State, Texas and Vermont.

The Bonadio Group’s Investment Banking and Transaction Advisory team has 30+ years of investment banking experience. Our team specializes in sell-side investment banking transactions, assisting business owners looking to sell and exit their businesses. We generally serve companies with annual revenues from $10 million to $100 million and enterprise values from $5 million to well over $100 million. Our team is both geography and industry agnostic.

We utilize a proven six-step investment banking process that is comprehensive, minimizes disruption to our client’s daily operations, and is designed to maintain confidentiality and maximize value. Our Investment Banking team is led by Jeff Lewis and Dave Dinolfo.


Upstate Capital Membership

The Upstate Capital Association of NY is Upstate NY’s membership network for private equity investors, M&A professionals, venture capital investors, CEOs and business owners, entrepreneurs and ecosystem support professionals. Our mission is to increase access to capital for companies and deal flow for investors across New York.

Join as a Corporate Member to gain:

  • Access to Upstate Capital’s network of investors, entrepreneurs, transaction professionals and service providers
  • Visibility in front of professionals in the deal-making community through listing in Upstate Capital’s searchable online membership directory and “Who’s Who in Venture & Private Equity” directory, distributed annually
  • Free passes to online events
  • Access to members-only content online
  • Opportunity to share events and distribute news announcements
  • Discounted tickets to selected in-person events

For more information and to join Upstate Capital visit UPSTATECAPITAL.ORG/JOIN



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