Midway through the year, 2015 was delivering about the same level of deal flow as 2014. But by the end of the summer, 2015 was clearly trailing 2014 on completed middle-market transactions, according to data from Thomson Reuters (see related graphic). While there’s still plenty of time to turn things around in the fourth quarter, the global economic news and the roller coaster-like stock market make a big uptick in M&A seem unlikely.
August was the fourth month in a row to deliver fewer completed deals -- and the fifth month in a row to generate lower deal value -- than the same month the previous year. After eight months, 2015 delivered 1,489 closed middle-market deals, compared with 1,584 for the same period in 2014. And on Mergers & Acquisitions’ own monthly surveys, overall deal flow in August hit its lowest point since February. (See Middle Market Momentum Stalled in August.) To those hoping to blame the pause on seasonal factors, let me point out that July was one of the strongest months for the middle market in 2014.
Some dealmakers scoff at the notion that M&A is slowing down, and many insist the middle market and especially the lower middle market lie below the fluctuations of the macro-economy. It’s certainly true that some prominent middle-market private equity firms are having a good year, but in uncertain economic times, the strong may get stronger, while the weak get weaker.
A look back demonstrates that the economy has a profound impact on dealmaking activity. While pre-recession 2007 generated 3,565 deals in the middle market, 2009 yielded a paltry 2,041. And, a full seven years after Lehman Bros. declared bankruptcy at the end of 2008, deal volume in the middle market has still not recovered fully. China’s slowdown, Greece’s debt and Iran’s oil may turn 2015 into yet another year that shows us, “It’s the economy, stupid.”