Yesterday we discussed the growth of global M&A activity in the first quarter of 2011. Today we look at and activity data for North America (the acquired companies are located in either the U.S. or Canada). As we learned yesterday, according to Mergermarket, deal-making is up across the board so far in 2011.
Although deal-making volume is relatively flat when you compare the first quarter of 2011 to the first quarter of 2010, it is up substantially from the bottom of the last M&A cycle in the first quarter of 2009. In fact, it is up an estimated 35 percent from that low point (see the red line and boxes below).The following chart illustrates this.
If you compare deal value, the first quarter of this year is showing substantial improvement over the first quarter of 2010. As the dark blue bars above illustrate, deal value in the first quarter of this year is up an estimated 90 percent during the same period last year.
As we stated yesterday, all of this data illustrates one key point: The M&A cycle appears to have turned. You can see that in both the global chart yesterday and the North American chart above. If you look at deal activity, clearly the first quarter of 2009 was the low point of the last M&A cycle. The peak-to-trough drop from the high point of the second quarter of 2007 to the bottom of the cycle in the first quarter of 2009 is dramatic. However, the good news is that every M&A recovery cycle beats the prior high point and usually does so in dramatic fashion.
No one can accurately predict when the next peak in M&A activity will occur. Nor can anyone predict how large a deal volume increase it will be. But what we do know with some certainty is that we are now on the upward side of a new cycle. If you are considering the sale of your company in the next few years, I would suggest you move your timing up. It is far better to sell on the upward side of the growth cycle than to do so after the peak. Buyers are more active and valuations are higher on the upward swing of the market than on the downward side.
Another key point to be made about Mergermarket data is that, as we saw with the global info, themade up a significant amount of deal volume last quarter.
North American M&A Deal Size Breakdown
Source: Mergermarket M&A Insider – April 2011
As you can see, more than 86 percent of all deals closed (that were announced) were valued below $250 million in North America. This is really significant. The middle market makes up most of all deals that are closed in this region. Buyers know that the best targets are not necessarily the behemoths of the business world. Rather, savvy corporate executives and equity fund managers know that the best returns can be found by acquiring a smaller and growing it.
So, based on this latest Mergermarket data, if you are an owner of a middle-market company, the next nine to 18 months will provide you with the best opportunity in years to find premium buyers. As I stated, no one can ever predict when the peak of the next M&A cycle will be. What we do know with some confidence is that the next peak will be higher than the last one in the second quarter of 2007. Finding a buyer while we are on the upswing will provide you with a better return than waiting and trying to time the peak. We know that rarely works!
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