The M&A Market Is Peaking

  • The cover of a recent issue of MERGERS & ACQUISITIONS posed the question – “As Good as it Gets?” – regarding the current M&A marketplace. To answer the question, YES – the M&A market is as vibrant today as it has been since its peak in 2007. With soaring valuations driven by the volume of capital on the sidelines, scarcity of quality companies for sale and aggressive buyer competition, business owners should move beyond asking if the market is as good as it is going to get and figure out how to take advantage of it.

    THE M&A MARKET CONTINUES TO THRIVE
    • Aggregate deal value appears to be peaking at the present time, reaching a monthly high of $263.9bn in May ‘15.
    • Deal activity in the lower middle market remains strong. Deal activity in the $25.0M – $49.9M range was up 11.5% for the twelve months ending 7.31.15 vs. the trailing twelve months.

    NOW IS THE TIME TO CAPITALIZE
    The first half of 2015 was very robust from a deal making standpoint. Attractive valuations, cash rich buyers and a scarcity of quality companies for sale led to tremendous outcomes for business owners who capitalized on the current market conditions. With the M&A market currently in a 75 month expansionary cycle, the question becomes – how much longer can the market continue at this pace? Given the average economic expansionary cycle of 58.4 months, to the extent a sale or recapitalization is of consideration any time in the next five years, now is the time to capitalize.

    SOARING VALUATIONS
    • Cash rich buyers, both strategic and private equity, are extremely aggressive today for deals.
    • A scarcity of quality companies proactively pursuing sale has created a limited supply for buyers.
    • This combination of cash rich buyers and scarcity of quality companies for sale is pushing valuations to all-time highs.

    VOLUME OF CAPITAL
    • Strategic buyers are holding roughly $2 trillion in cash on their balance sheets today.
    • There are approximately 3,300 private equity groups headquartered in the U.S. 500+ of these private equity groups are actively fundraising.
    • The volume of capital held by strategic buyers and private equity groups motivates all parties to put money to work.

    SCARCITY OF QUALITY COMPANIES
    • Sourcing new and proprietary deals with strong fundamentals and alternative growth opportunities is a significant challenge for buyers in 2015.
    • Strategic buyers, as well as private equity groups, are in direct competition for quality deals that remain today.
    • Over 11,000 companies in the U.S. are already owned by private equity groups.

    NOW IS THE TIME TO CAPITALIZE
    • The capital overhang could keep valuations high across the board.
    • Any owner with a valuable asset interested in selling in the next five years must consider the current market conditions.
    • Now is the time to capitalize!