2019 Q2 M&A Update
“It was the best of times, it was the worst of times.”
Just as portrayed in the opening of Dickens’ 1859 classic, A Tale of Two Cities, how one experiences the world is wholly dependent upon one’s local environment. In the case of Dickens’ novel, the locations were London and Paris. With respect to today’s M&A activity report, we are discussing the US market in comparison to the rest of the world.
Throughout Q2 of this year, US M&A activity remained resilient – fueled once again with a seemingly infinite supply of dry powder from Private Equity (“PE”), a continued desire for growth through acquisitions, and generationally low interest rates. At the same time, economic uncertainty, trade wars, rising nationalism, and blowback against trade globalization all conspired to mount a pullback in M&A activity outside of the US.
According to FactSet, the number of domestic deals announced in Q2 2019 declined by approximately 2% in comparison to Q1 2019; while, aggregate deal value, driven by mega-deals such as Bristol-Myers Squibb’s $93 billion acquisition of Celgene and UTC’s $90 billion acquisition of Raytheon, increased by an impressive 29% over the same period of time.
Figure 1: U.S. Mergers & Acquisitions Market Index
According to most analysts, the slight decline in domestic deal activity is attributable to a lack of available, high-quality deals – not investor or acquirer demand. With dry powder held by US PE Firms estimated at an historically high of $1 trillion, good assets are being acquired at record multiples. This supply of available cash in combination with the longest prolonged period of low interest rates in the last 100 years will continue to yield high demand and high multiples for the foreseeable future.
In Q2 of 2019, US PE buyout multiples (Total Enterprise Value/EBITDA) remained above 12x for the second straight quarter, according to PitchBook’s recent US PE Breakdown 2Q 2019 report. Quarterly review of the multiples from 2015 to through mid-year 2019 evidences an approximate 30% annual increase from a lofty base of 9.3x.
Figure 2: U.S. PE Buyout M&A Multiples 2016-2019
(Four-quarter rolling median)
Multiples across all sectors and deal sizes are expected to remain high in the near future as interest rates remain low, especially given the Fed’s action and market guidance of July 31. Also, assuming the bull market in US continues, we should see even more upward pressure on private company multiples.
As noted in our prior correspondence, the timing is excellent for Sellers! Significant cash, high multiples, low interest rates, and a lack of supply of quality companies for sale, all make for an opportune time to consider a company sale.
How do you view the world? Interested in selling your company or learning more about the state of M&A for your specific industry and Company? Contact us at TMO. 404-442-5681 or email@example.com.
Tucker, Midis & Owen (“TMO”), founded in 2002 and with offices in Georgia and North Carolina, is a leading provider of M&A investment banking services and strategic counsel to privately-held, middle market companies. TMO exists to bring world-class investment banking expertise and execution to closely-held businesses.