M & A activity on the rebound?

BVWireIssue #82-4
July 29, 2009

“Merger and acquisition activity began to pick up in 2Q ‘09 as markets bounced back from the low experienced in the first quarter,” reports Mike Rosendahl (PCE Investment Bankers). “After the substantial drop-off from 4Q ‘08 to 1Q ‘09, M & A activity increased as more buyers and sellers tested the market. Financial and strategic acquirers began to actively seek opportunities across nearly all sectors due to the widely held assumption that transaction values have decreased, providing the opportunity for higher returns. This belief, coupled with substantial capital waiting to be deployed, should help increase activity in the coming months. Additionally, business owners, having lowered their valuation expectations, should see an opportunity to affiliate with a well capitalized partner that can help position their company’s future growth when the economy rebounds, as well as pull some money out of their company.”
Deal activity has improved in all valuation segments. “Transactions with values between $100 million and $250 million experienced the greatest increase, improving 45.7%,” Rosendahl adds. “Transactions above $250 million underwent the smallest expansion, increasing 2.0%. Growth in transactions below $50 million was 11.6% while transactions with a valuation between $50 million and $100 million improved 22.2%.” Deals under $250 million have experienced the largest growth, due in part to the difficult credit environment that has made financing any transactions above this threshold difficult. “Valuations for transactions between $100 million and $250 million underwent the greatest improvement, increasing from 3.3x in 1Q ‘09 to 9.8x in 2Q ’09,” he observes. “The depressed level in 1Q ‘09 seemed abnormally low, bringing into question the reported data. The valuation level in 2Q 09, while high, is historically in line with multiples for this segment.”
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