The hopes of a rising tide in middle-market dealflow that appeared earlier this year have been all but washed away halfway through the summer. Deal volume dropped yet again in July, putting the market essentially flat year-on-year and over 40 percent down from two years ago, according to data supplied by LSEG. Here’s our monthly deal analysis.
July’s totals mustered just 58 mid-market deals, a total not seen since the heart of Covid in June 2020. Deal values were close to $17.9 billion, the second lowest total this year after February’s $16.4 billion output.
A look at the last three years of dealflow tells a deflating story.
Nonetheless, the optimists suggest there are positive elements in the market that could turn things around.
“Private equity sponsors and strategic corporate buyers are both holding record levels of cash,” says Michael Mufson, a managing director at Philadelphia mid-market investment bank Mufson Howe Hunter & Co.
“With the credit markets improving in underwriting higher leverage multiples and an outlook for reduced interest rates, the fundamentals are there for an active M&A market,” he continued. “Addressing that demand are both a plethora of PE sponsored-backed companies in need of a liquidity event and many closely held/family-owned businesses which the Covid economy deferred exits.”
From a sector perspective, the two biggest industries in M&A — technology and healthcare — are down slightly year over year, while the real estate, materials and retail are down significantly. On the positive side, energy and power are up almost 10 percent and consumer staples are on the rise, though the latter works off of a small base.
Adding to this list, Mufson is seeing activity in the building products, construction services, electrical, regional franchisees and the food and beverage industries. In one recent construction deal, Midland Garage Door, a portfolio company of LongWater, bought Martin Door, a garage door manufacturer based in Salt Lake City.
“As in uptick cycles, the best of the companies will be first to market and will receive the greatest interest,” Mufson adds. “By the best, I’m referring to companies with high-gross margins for their comparable industries, Ebitda margins in the mid-teens plus organic growth in the high single-digits.”
Other notable deals that closed last month include:
- AlphaSense’s acquisition of financial data provider Tegus.
- TransDigm Group‘s $655 million purchase of test and measurement services company Raptor Labs.
- Nvent Electric‘s $695 million deal for Trachte, a provider of engineered protection and control buildings.
In the league tables, Goldman Sachs (NYSE: GS), JP Morgan (NYSE: JPM) and Morgan Stanley hold the top three spots in terms of deal value (about $9.3 billion, $7.7 billion and $5.2 billion, respectively.) RBC Capital Markets, which held the third spot at this time last year is currently sitting in ninth place.
Not surprisingly, most banks’ production in terms of deal values is down year-on-year. Those showing improvement so far this year include Centerview Partners (up 35 percent), William Blair (up 28 percent) and Robert Baird (up 171 percent).
Reach Mufson at: [email protected]
See the full list of July’s biggest mid-market deals here.
