Early-Stage Deal Flow Surges

Dealmakers polled in March reported the highest level of early-stage deal flow that they’ve seen in six months, based on the composite score of 60.1 in the Mid-Market M&A Conditions Index (MACI), a barometer created by Mergers & Acquisitions and published in partnership with PwC.

Factors that had the largest impact included Leads, with a reading of 79.7, and Signed Letters (of Engagement and Intent), with a reading of 75.8. Another encouraging sign is that Completed Deals rose to 58.1, up from 47.9 the previous month, indicating that the momentum may be moving further into the deal-flow cycle. These indicators are in keeping with the optimism dealmakers have expressed about 2014 in many of our recent surveys and interviews.

The MACI is based on monthly surveys of approximately 250 executives at private equity firms, investment banks, lenders, and advisory firms in accounting, law, and consulting. The MACI is a diffusion index. Readings above 50 indicate an expansion in M&A activity, and readings below 50 indicate a contraction. A reading of 50 indicates there was no change month to month. The further from 50 a reading is, the stronger the indicated change.

The composite index is a weighted average of readings on a range of in­dicators based on responses to survey questions about topics that include the number of companies a firm has put up for sale, number of deals completed, ease of obtaining financing, number of bidders and actionable leads.
Respondents are also asked about staffing levels. Great care is taken to guarantee that the breakdown of responses are in line with the industry at large. The value for each component of the index is equal to the percentage of responses indicating increased activity, plus half of those indicating “no change.” Weighted component scores are then averaged to arrive at the composite score. When calculating the composite, contrary indicators are scored inversely — the com­ponent score is subtracted from 100.

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