Confidence in the economy, cash on corporate balance sheets, dry powder in private equity funds, low interest rates and high stock prices all combined to create a nourishing ecosystem for deals throughout 2014. In the U.S. middle market, 2014 yielded a total deal value of $315.3 billion, the highest since 2007, according to Thomson Reuters. Deal volume performed solidly, if not spectacularly, with 2,303 transactions closing -- 125 more than the previous year but not quite as many as other recent years. (For a look at M&A volume and value over a 10-year span, see related charts.) Although December did not deliver the end-of-the-year boost of recent years, dealmakers still predicted the good times will continue to roll. An impressive 70 percent of transaction pros polled by Mergers & Acquisitions in December said they expect deal flow to increase in 2015. 

Beyond the middle market, big M&A flourished, with 40,298 transactions worth nearly $3.5 trillion announced worldwide in 2014, according to Thomson Reuters.

The U.S. initial public offering market also soared, setting a 14-year record against a mostly low-volatility backdrop, according to Renaissance Capital. With 273 IPOs, 2014 was the most active period of issuance since 406 companies went public in 2000. It marked the second year of IPO growth, up 23 percent over 2013, due to a doubling of biotech issuance. Proceeds of $85 billion, inflated by the record-breaking $22 billion debut of China's e-commerce giant Alibaba (NYSE: BABA), were up 55 percent over 2013. Most observers predict that the IPO performance of 2014 will prove a tough act to follow.

Based on deal volume, the five most active sub-sectors in the middle market in 2014 were: commercial real estate; oil and gas; software; banks and professional services. Here are some notable transactions and trends of the year:


Car Talk

The largest middle-market transaction of the year was the $1 billion purchase of tire-pressure monitor maker Schrader International Inc. by Sensata Technologies Holding NV (NYSE: ST) from Madison Dearborn Partners. The deal, which closed in October, was fueled by an increase in car sales all over the world. M&A proliferated among car-related companies throughout the year. Another big deal in the auto world was the $994 million purchase by Dealertrack Technologies (Nasdaq:TRAK) of Dealer.com, a provider of digital marketing services for the automotive retail industry, which closed in March.


AgriBusiness

Another large middle-market transaction was the purchase by Platform Specialty Products Corp. (NYSE: PAH) of Chemtura AgroSolutions for $989 million. The deal, which closed in November, marked the second of three recent acquisitions in the crop protection space by the specialty chemicals maker.

In October, Platform completed its acquisition of Agriphar for $383 million and announced its intention to buy agricultural chemicals maker Arysta LifeScience Ltd. from PE firm Permira Holdings Ltd. for $3.51 billion.


 Specialty Drugs

and Tax Inversion

In a transaction that closed in September, before new rules on tax-inversion deals from the U.S. Department of the Treasury took effect, Horizon Pharma Inc. (Nasdaq: HZNP) bought Vidara Therapeutics International Ltd. for $660 million.

Vidara, headquartered in Dublin, is a specialty pharmaceutical company that makes Actimmune, a drug approved by the U.S. Food and Drug Administration that is used in patients with chronic granulomatous disease and osteoporosis. Horizon changed its headquarters address from Deerfield, Illinois, as part of the transaction.


 Healthy Food

A significant food and beverage deal was the $816 million acquisition of Annie's Inc. by General Mills Inc. (NYSE: GIS), which leveraged the growing interest in organic and natural foods that has been driving deals in the sector for a couple of years. Annie's was backed by Solera Capital, a New York private equity firm founded by Annie's chairman Molly Ashby.

There were many transactions involving better-for-you food, beverages and supplements in 2014, including the $450 million purchase by Hormel Foods Corp. (NYSE: HRL) of CytoSport Inc., the maker of protein drink Muscle Milk, in a deal that closed in August. We weren't surprised to see Hormel take advantage of the trend. The maker of Spam has become an increasingly adept strategic acquirer. Mergers & Acquisitions honored Hormel with our 2013 M&A Mid-Market Award for Deal of the Year for the $700 million purchase of the popular Skippy peanut butter brand from Unilever plc (NYSE: UL).


Tech Time

The tech sector delivered September's largest middle-market deal, as competition heated up for Twitch Interactive Inc., an online community of video gamers. Amazon.com Inc. (Nasdaq: AMZN) took home the prize for $970 million, marking the Internet company's biggest acquisition ever.

E-commerce attracted many investors in 2014. In one of the larger deals, Rakuten Inc., based in Tokyo, bought rebates website Ebates Inc., headquartered in San Francisco, for $981 million. The deal, which closed in October, marked Japan's largest e-commerce deal.

A small but interesting e-commerce deal came from Chicago private equity firm Sterling Partners, which bought Innotrac Inc. for $109 million in a transaction that closed in January. Innotrac provides e-commerce fulfillment, reverse logistics, call-center support and digital technology integration to retailers.

Dealmaking in the tech sector is expected to expand further in 2015, according to the monthly polls conducted by Mergers & Acquisitions. Other sectors our audience is bullish on include health care and financial services.

Editor's Note: To measure activity in the middle market, Mergers & Acquisitions looks at transactions that fulfill several requirements: Deals must have a value of roughly $1 billion or less; they must be completed (not just announced) within the timeframe designated; and they must include at least one U.S. company in the role of buyer and/or seller. Excluded from our charts are: recapitalizations; self-tenders; exchange offers; repurchases; stake purchases; and transactions with undisclosed values, buyers or sellers. Our data provider is Thomson Reuters, which updates its databases continuously. We use the data available at press time. For this article, data was collected on Dec. 31, 2014.

Browse charts and graphs:

Sensata's Acquiring of Madison Dearborn-Backed Schrader Tops List of Mid-Market Deals in 2014

Month-by-Month Look at 5 Years of Mid-Market M&A

Top Mid-Market Deals by Industry

Most Active Mid-Market Investment Banks

Most Active Mid-Market Law Firms

10 Years of Mid-Market Leverage Buyouts

10 Years of Mid-Market Cross Border Deals

 

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