“While merger and acquisition activity is down in both value and volume over the last twelve months, when compared to 2004 the activity remains quite respectable,” says a new article by Mike Rosenthal (PCE Investment Bankers), which takes a first look at Q1 2008 M&A transaction data.  “However, the trend over the last four quarters would indicate that we could see a further drop.”   The sub-prime contagion continues to spread; foreclosures are up; banks are scrambling for new capital and restricting access to new loans—“all of this is forcing nearly everyone to pause.” 

At the same time, “strategic and financial buyers are searching for quality assets that fill a need or act as a platform for growth,” Rosenthal says, and valuations are improving in the middle market in most segments.  “The jagged movement of multiples makes it difficult to spot trends,” but the most notable increase appears to be among middle market companies (below $50 million), for which EBITDA multiples improved from 7.9x to 8.7x from Q4 ’07 to Q1 ’08.  The data suggest that a “healthy demand for middle market companies still exists” and the market “should remain busy.”  A complete copy of “State of the M&A Markets, First Quarter 2008 Update,” is available here.