Intrepid CEO Ed Bagdasarian opines on a muted middle market

Ed Bagdasarian, the CEO of specialty investment bank Intrepid, believes that to win deals you need to be targeted.

Why it matters: Amid a difficult financing market and a scarcity of quality assets, buyers are facing stiffer competition — particularly in the middle market.

Bagdasarian spoke with Axios as part of our Expert Voices series. The interview was edited for clarity, style and length.

What's your outlook on middle market M&A?

• "We're in a bifurcated market. We're in a very polarized market.
• When you look at the volume of deals being down, valuations in certain sectors are as high as they've been and even higher. In other sectors, they have gone down 20% to 30%.
• The major driver for the difference is when you have a quality company with a differentiated business model and a company that's experiencing growth in this market, you have tremendous unprecedented interest for these assets.
• The buyers are really flocking to strong companies, strong management teams, differentiated business models, and there's a scarcity of those types of businesses in the marketplace.
• So I think the volume will be down overall; the valuations for high-quality companies will be as high or higher than before.
• We're expecting to have a 50% increase in deals that we close and volume of transactions this fiscal year which ends in March for us compared to last year."

Where are the focus areas for you?

• "We're adding to existing areas plus adding three new areas. We're adding to our food and beverage and agriculture vertical, we're adding to our health care vertical, we're adding to our software and services vertical, and we made some recent additions to our industrials vertical.
• We're now looking to add new industry verticals.
• We're particularly looking to establish a restaurant [M&A] advisory business because we have a lending group in our parent company that is one of the largest lenders to the restaurant space, to the franchise restaurant space."

Within private equity, how many auctions are you seeing?

• "Increasingly, we're doing narrower auctions. And the reason is that the market has become very selective if you are an acquirer unless you have a real angle in pursuing a company.
• So we know already in each industry sector who the key acquirers are, whether they're strategic or they're private equity, and we tend to focus.
• The parties that are going to play in those competitive processes are going to be those who have an angle."

How has the financing environment been?

• "So the bank lenders across the board have pulled back, they're more conservative, and as a result, what we're seeing is increased activity by private credit funds. Hedge funds, BDCs [business development companies], and other alternative investment funds, who have stepped in to fill that gap in the marketplace.
• At the same time, we're starting to see some banks coming back into the market. Our own parent company, MUFG, is actually quite aggressive, moving into financing private equity acquisitions, so they've established the direct lending group, and then increasingly stepping into as a lead lender in those middle market transactions."