Bankers and investors are looking forward to another bumper crop of mergers and acquisitions in 2005 as the healthy economy and accumulated cash encourage market participants to harvest targets judged most ripe. And while deals that make headlines tend to involve multibillion-dollar companies, such as the match-ups of Sprint and Nextel or Kmart and Sears Roebuck, some data suggest that the companies most alluring to buyers today are those in the middle market.

A study by Brown Gibbons Lang & Co., a boutique investment banking company that specializes in the middle market, shows that in the first nine months of 2004, the average valuation for companies with revenues between $250 million and $500 million rose to a multiple of 9.9 times, up 39.4% from the average valuation of 7.1 times for companies that size in 2003.

Of course, the middle market benefits from its popularity with private equity funds, which currently have about $100 billion to invest. Robert Filek, a partner in transaction services at PricewaterhouseCoopers, describes the middle market as "a sweet spot for private equity" given factors like the amount of leverage such investors are willing to use. And private equity firms are active on both sides of the middle market these days, confirms Patrick Hurley, president-elect of the Association for Corporate Growth (ACG), a group of professionals involved in M&A and corporate development. Those with money want to invest it, since "if they don't spend it, they have to give it back," Hurley says. Other private equity firms are eager to cash in on investments they made three or four years ago, he adds.

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