Disclosed middle market M&A activity during the fourth quarter was positive with deal volumes holding steady and deal values increasing by 12% over 3Q and in line with 4Q 2018 results. Activity was largely driven primarily by strategic acquirers with strong balance sheets and ample access to low-cost capital continuing to tap the middle market in pursuit of inorganic growth opportunities.
ArkMalibu M&A Market Monitor – January 2020
ArkMalibu’s M&A Market Monitors are now available.
2019 was a story of two halves. The first half of the year was marked by rising trade and geopolitical tensions, increasing market volatility, and a looming recessionary cloud hanging over the head of investors. Notably, large market M&A activity slowed while middle market activity kept pace with historical levels.
The second half of the year saw investors coming to grips with a dovish Fed, M&A activity returning to peak levels, stabilizing global manufacturing results, lessening recessionary concerns, and the number of countries with active quantitative easing initiatives rising to levels not seen since the Great Recession. We are not quite out of the woods, but we continue to believe that near-term recession risk is low. This year we will be keeping an eye on the U.S. Presidential election, global monetary and trade policy, the progress of China’s economic recovery, and the longest U.S. economic expansion in history as it nears its 127th consecutive month.
U.S. & Canada M&A Overview
Median deal pricing in 2019 rose to 12.0x EBITDA, up from 11.2x in 2018 and down slightly from 12.1x in 2017.
Disclosed middle market M&A activity during the fourth quarter was positive with deal volumes holding steady and deal values increasing by 12% over Q3 and in line with Q4 2018 results. Activity was largely driven primarily by strategic acquirers with strong balance sheets and ample access to low-cost capital continuing to tap the middle market in pursuit of inorganic growth opportunities. Of deals with disclosed financial information, the middle market accounted for 28% of total deal value and 96% of total deal volume.
Strategic buyers accounted for approximately 70% of M&A transactions in Q4. Financial buyers made up the remaining 30% of deals as firms seek opportunities to deploy vast amounts of dry powder and family offices continue to increase allocations to direct investments. Against this backdrop, ArkMalibu expects the M&A market to remain strong through 2020.
U.S. Equity Market Overview
U.S. equity markets accelerated in the fourth quarter as investors took advantage of an improving global trade environment, optimism regarding the health of the economy, and the Fed signaled a continuation of its dovish posture by cutting interest rates for the third time in October. The S&P 500, Dow Jones, and Russell 1000 posted returns for Q4 of 9.1%, 9.0%, and 6.7% and truly outstanding YTD returns of 31.5%, 25.3%, and 31.4%, respectively.
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 and then help you navigate the M&A market in achieving your goals.