Dealmakers polled in October report a modest pickup in activity from the previous month, based on the Mid-Market M&A Conditions Index (MACI), a new barometer created by Mergers & Acquisitions and sponsored by global professional services firm PwC.
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. Values for each component of the index are 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.
The October MACI yielded a composite score of 57.7, based on 286 responses. Factors that had the largest impact included Leads, with a reading of 74.4, and Signed Letters (of Engagement and Intent), with a reading of 70.7. Since those components represent the early stages of dealmaking activity, the readings may bode well for the next month's activity. However, offsetting those was a weak reading for Divestitures, at 38.9, suggesting that private equity firms are still waiting for more stable economic conditions to sell portfolio companies.
Monthly readings will be presented as a longitudinal series that can be used to monitor the prevailing rate and direction of change in M&A, and eventually to benchmark whether an institution is operating in line with overall industry trends.