Mid-Market M&A Down, Not Out
While the pace of middle market M&A is down substantially this year, a new report points out that distressed sales could increase and that large-scale M&A is still experiencing greater difficulty.
April 30, 2009
Middle market M&A and small-cap deals are down, but that should not necessarily be viewed as any ultimate harbinger, according to a Baird & Co. report.
In the US, deals done through March 2009 worth under $100 million are happening with 33% less frequency, and deals done between $100 million and $499 million are happening 41.5% less frequently, both compared to respective figures in 2008. Indeed, it is bad news, but looking at deals worth north of $1 billion (those are down more than 50%), there remains reason to be optimistic. The Baird report noted that lending remains difficult to obtain for companies lacking highly-rated credit, but noted distressed situations are expected to accompany increasing financial restructuring activity.
In the US, deal value dropped comparing figures through March 2009 to the prior year; again, deals closer to the $1 billion range were hardest hit (off nearly 75%) compared to deals worth less than $500 million, which still fell by nearly 50 percent. It is worth noting, of course, that Ebitda multiples from 2008 to 2009 fell nearly eight percent.
US cross-border M&A activity was accented by deals in Canada, the UK and China that focused primarily on metals and mining, professional services and internet software and services, the report stated.
The report painted a somewhat more optimistic picture for Europe; where middle market M&A was also hit hard.
“In an effort to boost economic production and stem rising unemployment, leading European countries have implemented economic stimulus programs,” the report stated. “In addition, the European Central Bank has pursued a policy of lowering interest rates as means of enhancing the availability of credit, which should help drive deal flow.”
The way smaller middle-market M&A was affected in the US, it was hit with greater impact in Europe; deals through March 2009 compared to the prior year approaching $1 billion were happening with far less frequency and far less value attached to them than deals worth up to $500 million. Over the same time period, Ebitda multiples slid far less (8.4x for 2008, 8.1x this year) than they did in America.
“M&A activity continued to hold up much better in Asia than in other regions of the world in March,” the report stated; India’s middle market was hard hit by a 30% drop in first quarter M&A comparing 2008 to this year. In China, 314 deals in the first quarter marked a substantial decrease from the 418 deals that were executed last year but the value of middle market deals there fell by 44 percent.
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