In this article we will discuss current M&A activity and Private Equity activity. Lets first look at some of the national statistics and translate that to how it affects our clients in the mid-market business sector. We noted that despite the total M&A growth is up, the Mid-Market deals are down over this time last year. See what we think is happening in this article.

The total M&A Activity is up considerably

U.S. M&A deal activity increased in May, going up 7.5% with 1,083 announcements compared to 1,007 in April. Aggregate M&A spending increased as well. In May 4.4% more was spent on deals compared to April. Over the past 3 months, the sectors that saw the smallest decreases in M&A deal activity, relative to the same three-month period one year ago, was: Commercial Services (481 vs. 435), Health Services (172 vs. 140), Health Technology (110 vs. 97), Communications (37 vs. 26), and Transportation (79 vs. 69). Nine of the 21 sectors tracked by The Burns Firm M&A Advisors posted relative gains in deal flow over the last three months compared to the same three months one year prior. Over the past 3 months, the sectors that have seen the biggest declines in M&A deal volume, relative to the same three-month period one year ago have been: Distribution Services (154 vs. 181), Finance (398 vs. 420), Technology Services (477 vs. 498), and Consumer Durables (39 vs. 57). Twelve of the 21 sectors tracked posted negative relative losses in deal flow over 178 deals

The PE Activity is continuing to increase

Investors are continuing to be wary of the Dow Jones increase to historic levels and many are learning from past “adjustments” in the market. As a result of this, many investors are looking toward Private Equity for alternative investments.

U.S. private equity activity increased in May, up 4.5% from April. There were 139 deals in May compared to 133 in April. Aggregate transaction value decreased, down by 23.1% to $35.8 billion from April’s $46.6 billion. The top financial advisors for 2018 based on deal announcements, are: Goldman Sachs & Co., JPMorgan Chase & Co., Morgan Stanley, Houlihan Lokey Inc., and Barclays Plc. The top five financial advisors, based on the aggregate transaction value of the deals worked on, are: Goldman Sachs & Co., Morgan Stanley, JPMorgan Chase & Co., Centerview Partners LLC, and Credit Suisse.

Despite the overall spending and total deals increasing, our market reflects a decrease

Surprisingly our market, under $25M deal size, the number of deals and the aggregate transaction value were down for the period May 2018 over the same period in 2017. See the attached Graph below from FactSet Research Systems, Inc.

What we believe is happening

We believe that not all deals under $25M are being reported. As we have noted in the past this size of deal is often private and is not noted in traditional statistical reporting. That being said, we are only mildly concerned about the decline and how this may affect our clients. However, it is worth noting that selling a business, especially to a strategic buyer, can provide significant liquidity and generational wealth to even a small business owner.

If you are interested in further discussion of this article, you may contact us at 972-699-9994.