The Transition Companies News

What’s happening in the lower middle-markets now? . . . some good news:

1. May 2010 has shown a 61.4% in increase in M&A activity over May 2009. May 2009 had 319 reported transactions while May 2010 increased to 515. YTD M&A activity is up 57% from 2009 to 2010 with 1,604 reported transactions May 31, 2009 YTD to 2,518 YTD May 31, 2010. The greatest increase in activity is at the sub $50 million sized transaction level.
2. Canadian acquirers continue to be largest buyers of U.S. companies and their acquisition activity in 2010 is expected to increase over 2009. In 2009 Canadian companies acquired 294 US companies yet through May 31, 2010, Canadian buyers have already closed 161 reported transactions.
3. The breakout of different types of buyers active in this market has changed with private buyers (47% of activity L3M 5-31-10) more active than public buyers (27%) and Private Equity Groups (“PEG’s”) less active at 10% while foreign buyers are at near record levels at 16%. 2009 and YTD 2010 are showing near record level of acquisition activity by private buyers and foreign buyers with near record low level of acquisition by public buyers.
4. PEG acquisition activity has increased 23.2% comparing May 2009 to May 2010 and 3.3% YTD 2009 to 2010.  Furthermore, transaction value for PEG activity has increased 44.5% YTD 2009 to 2010. May 2010 was the third solid month of increased PEG acquisition activity.
5. The Average Equity Contribution by Private Equity Groups to close transactions is at an historical high 50% for sub $50 million transactions and 46.4% for $50 million and greater sized transactions. With the capital markets still tight, PEG’s are able to borrow less and are infusing more equity into transactions.
6. Interest rates remain low, for the moment, allowing buyers to grow by acquisition which is easier and more cost effective especially in a very competitive market. However, interest rates are expected to rise in 2010 which will reduce buying power and may result in lower values.
7. Based on empirical data as of May 31, 2010 values of privately-held companies, based on offers for those companies in market, have  not changed materially, if at all, in this market. However, deal structure is more prevalent as sellers want to share in the improved economy and buyers want to mitigate some risk.

M&A News from the middle-markets is largely drawn from empirical data and day to day observations and experiences marketing and closing M&A transactions. Much independent data is available but it needs to be tempered and blended with daily feedback from actual markets to develop any meaningful updates or “News”.

In fact, market data, news and feedback can even be affected by definition of “middle-markets”. There is no strict definition of “middle-market”. In some definitions the middle-market is defined as transactions between $1 million and $500 million while in other cases the middle-market is defined as $250 million through $500 million transactions with smaller transactions defined as “lower middle-market”.

Therefore, true M&A Market News depends on the definition of “market size” combined with empirical data, experiences and observations.  Clients are encouraged to speak with an M&A professional from The Transition Companies for more detailed and defined information to help get the lives they want.