Add-On Deals Will Drive 2024 Middle Market M&A

By Demitri Diakantonis
Jan. 15, 2024

Despite dealflow being down by over 30 percent year on year, there was a glimmer of hope as the year concluded. Deal volume was up by 33 percent in November and December compared to 2022, according to LSEG. While no one is calling for a return to the record levels of 2021, many experts say the middle market has historically been resilient and should perform well in 2024. Here’s why.

“We see deals getting done in the lower middle-market,” says Cassel Salpeter & Co. Chairman and co-founder James Cassel. “If you’re doing lower mid-market M&A, a lot of times it’s an add-on acquisition. I think we’re going to see another good year in lower mid-market M&A in terms of add-on acquisitions.”

Cassel sees this particularly happening in the technology, healthcare and manufacturing sectors. For example, earlier this month, Gryphon-backed Vision Innovation Partners, a mid-Atlantic eye care platform with nearly 70 locations, bought Bucks-Mont Eye Associates PC in Sellersville, Pa.

On the technology side, Comply365 LLC, a portfolio company of Liberty Hall Capital Partners and an enterprise SaaS and mobile services company for content management and document distribution, has merged with Vistair Limited earlier this month, an operational data management company for aviation technical publications, safety and regulatory content.

The technology and healthcare sectors were the top two sector performers in the middle market last year, according to LSEG, with 156 and 124 deals completed worth about $38.5 billion and $28.7 billion, respectively.

Overall, there were 801 mid-market deals worth $240 billion completed in 2023 compared to 1,198 deals valued at approximately $350.2 billion completed in 2022. The LSEG numbers are based on North American deals worth between $100 million and $1 billion.

In the league tables,  JP Morgan, Goldman Sachs and RBC Capital Markets were the top three in 2023 in market share and number of deals advised. Houlihan Lokey (NYSE: HLI) moved from 14th place in 2022 to seventh in 2023. The firm recently acquired direct placement Triago.

Bankers are optimistic of what’s to come in 2024. “Expect the unexpected in 2024,” says says Thomas Smale, the CEO of investment bank FE International. “We’ll see more strategic, technology-focused deals and a keen interest in sectors like healthcare and AI. PE is gearing up for a comeback, but with a twist. The focus will shift to selective, high-potential investments.”

“I’m optimistic about 2024,” Cassel adds.

See the full list of December’s biggest middle-market deals here.


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Biotech Gets Creative to Avoid Bankruptcy in 2024

By Ana Mulero
Jan. 10, 2024

A total of 41 companies declared bankruptcy in 2023, according to SEC filings, an all-time high. And this is far from the only indicator of the industry’s poor financial conditions. The biotech industry is grappling with its worst bear market in recent memory, marked by challenges in obtaining fresh capital and cost-cutting measures such as layoffs.

In such a dreary funding climate, experts spoke with BioSpace about a paradigm shift in financial strategies, with increased use of royalty financing, spun-out assets and venture debt, among other nontraditional sources of cash.

There is a need to reevaluate conventional deals where companies sell common stock at market price or at a slight discount because “if you don’t and don’t get realistic, you’re going out of business; you’re going to run out of money,” said Ira Leiderman, managing director of healthcare at investment banking firm Cassel Salpeter & Co.

Growth in Royalty Financing

One of the alternatives that companies are increasingly turning to is royalty financing—funding based on future revenue-sharing agreements. Royalty financing looks attractive to companies, generally speaking, because these are non-diluted sources that do not affect their equity value, experts explained to BioSpace. In contrast, venture capital funding, angel investors, IPOs, convertible notes, stock options and warrants, rights offerings and secondary offerings all typically dilute equity.

Royalty financing has “carved out its place in the market,” said Brad Sitko, chief investment officer at XOMA, because “you’re selling economics,” not shares.

Historically, royalty financing has been dominated by three firms—Royalty Pharma, HealthCare Royalty Partners and Blackstone. They made up an average of 70% to 80% of the royalty dollars over the last couple of years, said Cody Powers, a partner and principal of portfolio and pipeline at management consulting services company ZS Associates. But now, more and more companies are adopting royalty financing. “There are more players now, and even more people are trying to get in,” Powers told BioSpace.

There are risks, however. If the company gives up too much upfront in a royalty deal and receives too little of a product’s revenue down the line, it can have serious financial consequences. “But given the choice between developing nothing and developing something, a lot of companies right now are just saying, ‘We’ll just deal with lower profitability,’” said Powers, adding that “it’s hard to imagine” the royalty financing space would not continue growing moving forward.

Ravi Samavedam, chief innovation officer at quality and compliance solutions company Azzur Group, also noted a growing trend among early-phase startups constrained by limited capital: offering future royalties in exchange for a firm’s services. This allows them to conserve funds for scientific endeavors, with the expectation of one day making payments based on the revenue generated by their assets.

Yet Leiderman cautions that licensing deals, including royalty financing, can take too long to help the company stay afloat. “Doing a licensing deal takes six to nine months minimum,” he said. “If you’re relying on that to pay the rent and make payroll, it’s pretty dangerous.” So, in some cases, companies may want to consider other options, he added.

Alternative Funding Strategies

Recent layoffs have depleted companies’ expertise, leading to a trend of transferring less mature programs to other entities through licensing agreements or partnerships, Samavedam told BioSpace. Besides royalty funding, companies can consider mergers and reverse mergers, or sharing the license with another firm to co-market therapies in specific geographic locations.

Another funding option is venture debt. Instead of selling ownership stakes in exchange for capital, companies access non-dilutive financing through VC loans. This, however, can be challenging for biotechs without a clear repayment plan, according to Sitko.

Grant financing is yet another avenue, but its unpredictability make it an unreliable solution for many companies, Sitko said.

Lain Anderson, managing director and partner at strategy consulting firm L.E.K. Consulting, also brought up the hub-and-spoke model, which he called “an emerging trend.” This approach involves dividing a portfolio into distinct entities and fundraising for them separately, he said. It caters to investors who may prefer to invest in specific assets, seeking transparency about the allocation of their funds within the portfolio.

In general, Sitko said the right advice to companies is to use the fishing analogy and have as many lines in the water as possible. “You don’t know what is going to turn over and be the positive financing event you’re seeking and will allow you to continue.”

Keep Valuations Reasonable

Whether pursuing traditional or alternative investments, appropriate company valuations are important, experts told BioSpace. A company’s valuation directly influences the terms on which it can secure funding, and many companies these days make the mistake of overvaluing their worth, said James Cassel, chairman and co-founder of Cassel Salpeter.

“It may be that the seller has to give some consideration to taking earn-outs, milestone payments and other types of structures because what they really need is the buyers coming into the finance process moving forward, and some people are unrealistic about this until it’s too late,” Cassel told BioSpace. “No one has gone out of business from dilution, and it’s better in many cases to keep a smaller part of your company funded than own 100% of your company that goes out of business.”

Ana Mulero is a freelance writer based in Puerto Rico. She can be reached at and @anitamulero on X.


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Athersys Adds to Surge of Biotechs Filing for Bankruptcy, Sells to Healios

By Kate Goodwin
Jan. 9, 2024

Continuing the surge of biotech bankruptcies, Athersys filed for Chapter 11 on January 5, according to an SEC filing.

All assets of the regenerative medicine and cell therapy company are being divested to its research partner, Healio, to the tune of $2 million in the form of a credit bid.

The bankruptcy filing was not a surprise. After reporting disappointing results from its MultiStem pivotal trial in October 2023, the company said it was exploring options but, if unable to obtain adequate financing, would have to file for protection under bankruptcy laws to “conduct an orderly wind down of operations.” Athersys ended the third quarter of 2023 with only $1 million in cash, despite cost reduction efforts which included layoffs earlier in the year. Even a $10.4 million raise from investors and licensing partners in November was not enough to stave off Chapter 11.

Healios will now take the reins on Athersys’ MultiStem program, which has been in development since 1994. The off-the-shelf therapy developed from adult stem cells was being studied in ischemic stroke—a program which was already partnered with Healios—traumatic injury and acute respiratory distress syndrome. The treatment was attractive as a stem cell option because it could be given to patients without prior immune suppression or tissue matching.

Last year was a particularly tough one for biotech, presenting a record high number of bankruptcies, BioSpace found, with 41 biotech and pharma companies filing for bankruptcy. By comparison, 20 companies filed in 2022 and only nine in 2021.

Experts identified the primary drivers for the surge as the post-COVID-19 economy, a shift toward data-driven financing activity, rising inflation rates and the rapid rate of innovation leading to increased competition in the space.

“It’s a terrible market to get financing,” Ira Leiderman, managing director of the healthcare practice at Cassel Salpeter & Co., told BioSpace previously. “Companies are not getting financed, and they have no choice but to break the glass and push the bankruptcy button.”

Kate Goodwin is a freelance life science writer based in Des Moines, Iowa. She can be reached at and on LinkedIn.   


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Q4 2023: Tech Deal Report

Miami Investment Banking Firm Cassel Salpeter Releases Tech Industry Deal Report
South Florida firm publishes Q4 2023 Tech Investment Banking Report surveying technology deals, industry M&A, and public markets activity