Middle market M&A; activity in the U.S. & Canada continued to show signs of strength as both 3Q 2019 deal volumes and value increased over last quarter, driven by continued low interest rates, record sums of cash available for acquisitions, and a view that the outlook in the U.S. and Canada is better than anywhere else.
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U.S. & Canada M&A Overview
Median deal pricing rose to record levels of 12.4x EBITDA in the 3rd quarter, up from 11.6x in Q2 and 10.5x in Q1. Overall deal volumes remained steady in a continuation of the positive activity we saw in the first half of the year. As mentioned in last quarter’s letter, the first half of 2019 saw overall deal values reach levels not seen since 2015, driven by 21 megadeals which collectively transacted at almost $600 billion. In a return to historical averages, only 5 megadeals were completed in the 3rd quarter for a paltry sum of $84 billion causing overall Q/Q deal value to fall by 40%. Despite the decline in overall deal value, the middle market continued to show signs of strength as both deal volumes and value increased Q/Q driven by continued low interest rates, record sums of cash available for acquisitions, and a view that the outlook in the U.S. and Canada is better than anywhere else.
Strategic buyers accounted for approximately 75% of M&A transactions in Q3 as they continue to utilize the M&A markets to buttress organic growth. Financial buyers made up the remaining 25% of deals as firms seek opportunities to deploy huge levels of dry powder and family offices continue to increase allocations to private equity investments. Against this backdrop, ArkMalibu expects the M&A market to remain strong through 2020.
U.S. Equity Market Overview
U.S. equity markets posted modest growth for the quarter despite tepid economic data and a continuation of trade tensions. The S&P 500, Dow Jones, and Russell 1000 provided modest returns for Q3 of 1.7%, 1.8%, and 1.4% and robust YTD returns of 20.6%, 17.5%, and 20.5%, respectively. Investors had much to consider this quarter as the Fed maintained its dovish posture by cutting interest rates twice, U.S. consumer spending as a percentage of U.S. GDP neared all-time highs, the longest U.S. economic expansion in history continued, and volatility, a key product of late-cycle markets, increased. We continue to believe that near-term recession risk is low, but we will be keeping an eye on global monetary policy, China’s economy, and trade policy as the cycle continues to mature.
ArkMalibu Industry Snapshots
We invite you to access the M&A Market Monitor links below where you may download detailed reports containing M&A trends and data from 17 industries. Please feel free to contact us at 513-583-5413 to discuss how the information presented in each report relates to your business and its own unique set of value drivers.
Our team at ArkMalibu is proud of our conflict-free business model, M&A expertise and value-added processes, which continues to deliver results that far exceed the expectations of our clients, the one-time sellers. We would be delighted to listen to you and then help navigate the M&A market in achieving your goals.