Over the last several weeks we have seen a number of positive signs indicating that the economy is recovering and that better days are ahead. For example, the Index of Leading Economic Indicators (LEI) is showing consistent signs of recovery and Grant Thornton's Business Optimism Index shows that business leaders are increasingly optimistic about the future.

The LEI increased 0.7% in June following a 1.3 % gain in May and a 1.0 percent rise in April. Over the past six months, the U.S. LEI has improved 4.1 percent (annual rate).  The bottom of the year-to-year change occurred in December 2008 when the LEI declined 4.0%.

In addition, Grant Thornton’s recent Business Optimism Index, conducted between August 10^th and August 21^st of 2009 showed an increase again in August 2009 reaching 60.9 on a scale of 0-100. That is up considerably from 54.5 in May 2009. This quarterly confidence measure of US business leaders used a sample of more than 360 senior executives from various industries who responded to the survey. 

The survey found that US business leaders' are feeling much more positive about the outlook for the US economy with 73% feeling optimistic about their companies' growth over the next six months. In addition, 58% of the business leaders who participated in the study said they expect the economy will come out of recession by the first half of 2010, but only 26% plan to increase hiring.

This increase in confidence is confirmed by additional merger and acquisition activity as well. Just in the month of September, Xerox announced plans to buy Affiliated Computer Services in a deal valued at $6.4 billion while Abbott Laboratories agreed to buy the pharmaceutical unit of Belgian conglomerate Solvay for $6.6 billion in cash. Kraft is also said to be poised to launch a hostile bid for Cadbury valuing the British confectionery business at around $17.6 billion. On top of that, Disney agreed earlier this month to buy Marvel and eBay is moving ahead with plans to sell a majority stake in its Skype unit.

All of this new found confidence bodes well for middle market transactions as well. "The shareholders in companies that are acquired will do pretty well," says Douglas Hendrickson, a Partner at MidCap Advisors, a national middle market investment banking firm based in New York. "But we do not expect buyers to pay fat premiums in today's market. Those days are behind us. Now and going forward, M&A activity will be much more focused on strategic acquisitions and realizing the synergies of the combined companies rather than on inflated valuations."