Home >> Resources >> Blogs >> Market Insights >> Dramatic Improvement in M&A Activity
10 Feb |
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As we predicted in October 2009, the M&A market for middle market companies is now clearly on a rebound. Deal activity and transaction multiples are both up sharply from their lows in the 2nd quarter of 2009. Deal Volume is UpMiddle market M&A deal activity in the fourth quarter of 2009 increased dramatically from the activity levels of the previous three quarters. The total value of middle market transactions (enterprise value greater than $10 million and less than $500 million) increased by 90% in the fourth quarter of '09 from the third quarter. In addition, the total number of all M&A transactions increased 24% in the fourth quarter of '09 after increasing 23% in the previous quarter. The number of transactions for which enterprise value was not reported (mostly smaller transactions) also increased 22% in the same period, reinforcing that M&A activity reached bottom in the second quarter of '09 and is improving for larger and small companies alike. As the credit markets gradually improve and economic trends remains positive, we anticipate that deal activity in the first quarter of 2010 will increase slightly over that of the fourth quarter of '09. Activity in the industrial manufacturing sector was the hardest hit in 2009 while the financial sector (primarily distressed transactions), health care and energy remain robust. We expect interest in the industrial sector to increase slightly over the course of 2010. Transaction Multiples are UpThe multiples that buyers are paying for middle market companies is also up dramatically. The average multiple of earnings before interest, taxes, depreciation and amortization (EBITDA) increased to 6.1x in the fourth quarter compared to 5.9x in third quarter and 4.9x in 2nd quarter of '09. That represents a 24% increase in the average purchase price for middle market companies. For 2009 overall, deal multiples averaged 5.8x as financing remained very tight and a significant portion of deals in 2009 involved distressed companies. Current multiples are gradually getting back to 2008 levels but still have a ways to go. Throughout 2010, we believe EBITDA multiples will continue to improve while the credit markets slowly unfreeze and individual company peformance improves as the economy trends towards recovery.
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