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Deal Activity Improves in Q3 '09

After two lackluster quarters to start 2009, 3Q '09 transaction volumes increased over the previous quarters signaling that middle market M&A activity may have bottomed out in 2Q '09. Deal activity surged 18% from Q2 '09 volumes for disclosed middle market transactions (Enterprise Value < $500 million and > $10 million). While a positive trend, deal volumes remain at depressed levels which were 14% and 35% below Q3 '08 and Q3 '07, respectively.
Complete Market Update

Credit Markets Continue to Stifle Deal Activity

Despite greater stability within the banking system and signs the worst is over for the economy, limited credit availability and difficult economic conditions held transaction volumes at meager levels in Q2 '09. Deal activity was virtually unchanged from Q1 '09 and down 44% from Q2 ’08 for disclosed middle market transactions (Enterprise Value < $500 million and > $10 million). The lack of financing and discounted multiples applied to deteriorating earnings have expanded the gap between buyer and seller valuation expectations. Complete Market Update

No Signs of Deal Activity Recovering

The rapid deterioration of the global economy and continued turmoil within the credit markets pushed already anemic transaction volumes lower in Q1 ’09. Deal activity declined 39% from Q4 ’08 and 57% from Q1 ’08 for disclosed middle market transactions (Enterprise Value < $500 million and > $10 million). Limited credit availability, poor earnings and the inability to accurately forecast are forcing transactions to be postponed or completed at reduced purchase prices, thus driving down both volumes and multiples. Complete Market Update

Deal Activity Reeling as Economy Falters

The combined effects of the global economic recession and the beleaguered credit market took their toll in Q4 '08 as deal activity declined 28% from Q3 '08 and 43% from Q4 '07 for disclosed middle market transactions (Enterprise Value < $500 million and > $10 million). For 2008, middle market deal volumes were off 15% compared to 2007 and transaction multiples were down 1.0x averaging 7.2x enterprise value to EBITDA compared to 8.2x in 2007.
Complete Market Update

Uncertainty Causes Anxiety for Middle Market

With global recession fears now gripping the market, anxiety looms for middle market companies as to what lies ahead after the a rollercoaster ride during the first nine months of 2008. We previously suggested that middle market deal activity may have bottomed out during 2Q '08 and despite the unprecedented events that occurred during the third quarter, disclosed middle market transactions (Enterprise Value < $500 million and > $10 million) actually increased 5% from Q2 '08. Complete Market Update

Middle Market M&A Volume Bottomed Out?

Middle market deal activity slowed in the 2Q '08 due to the extremely tight credit market and overall economic concerns, particularly with respect to rising oil and commodity prices. Disclosed middle market transactions (Enterprise Value < $500 million and > $10 million) declined nearly 22% from Q1 '08. Complete Market Update

Middle Market M&A Remains Active

Although overall deal activity has slowed due to tightening credit markets and economic concerns, particularly in the large corporate segment, disclosed middle market transactions (Enterprise Value < $500 million and > $10 million) remained on par with Q4 '07 levels and actually increased 5% from Q1 '07. Complete Market Update

Peak of the Present M&A Cycle

As anticipated in the previous newsletter, the recent turmoil in the credit markets is showing signs of impacting the middle market. The average EBITDA multiple for middle market (Enterprise Value < $500 million) transactions declined during the third quarter primarily due to the credit crunch. Complete Market Update

Turmoil in the M&A Market

The recent turmoil in the credit markets did not impact Q2 data. In fact, according to Capital IQ, the average EBITDA multiple for middle market (Enterprise Value < $500 million) transactions during the first quarter of this year was 8.8x, up from the 2006 average of 8.4x and, relative to Q1 '07, up by approximately 0.5x. Complete Market Update

Global Economy Drives Healthy M&A Market

According to Capital IQ, the average EBITDA multiple for middle market (Enterprise Value < $500 million) transactions during the first quarter of this year was 8.0x, down from the 2006 average of 8.7x. The number of disclosed transactions held steady relative to Q4 ’06, but declined by approximately 10% when compared to Q1 '06. Complete Market Update

Strong M&A Market Continues

According to Capital IQ, the average EBITDA multiple for middle market (Enterprise Value < $500 million) transactions during 2006 was 8.7x, down slightly from the 2005 average of 8.9x. The lower portion of the middle market, where EV is less than $150 million, contributed to this decline. Complete Market Update

Market Softens a Bit

According to S&P, the average EBITDA multiple during Q3 2006 was 6.93x, down from 7.61x during the first half, for transactions in the less than $250 million size range where value statistics were publicized. Completed middle-market transactions declined 7% during the first three quarters compared to 2005. Complete Market Update

Favorable Market Continues

According to S&P, the average EBITDA multiple during the first half of 2006 was 7.61x, up from 7.52x in 2005, for transactions in the less than $250 million size range. In addition, middle-market transaction volume was modestly higher during the half by approximately 2-3% despite a slow Q1 (which was down 7% vis-à-vis the year-earlier period). Complete Market Update

As Expected - A Change in Direction

As predicted in our last Middle-Market Transaction Update, purchase multiples have begun to decline modestly suggesting the current boom cycle may have peaked. According to S&P, the average EBITDA multiple during Q1 2006 was 7.05x, down from 7.52x in 2005, for transactions in the less than $250 million size range. Complete Market Update

Multiples Expected to Plateau

Published data indicates that EBITDA multiples rose significantly in 2005. The average multiple increased by 1.20x to reach 8.06x for transactions in the $250-$500 million range, and by 0.73x to reach 7.52x for transactions in the less than $250 million range (source: S&P). Q4 appears to have been particularly strong. Complete Market Update

TOP OF THE MARKET? - CERTAIN MARKET INDICATORS ARE LEVELING OFF

Competition for quality acquisition targets drove the average EBITDA multiple up by 0.54x versus full-year 2004 results, to reach 7.33x for transactions of less than $250 million (source: S&P). Demand and supply appear to be coming into balance, however, thereby indicating limited prospects for further rise in multiples. Complete Market Update

MIDDLE-MARKET M&A REMAINS VERY ACTIVE

We are seeing unusually high deal flow and continued expansion of purchase price multiples. Fueling this growth are an abundance of available capital and an underlying sound economy. Business owners have been quicker to market sensing the very real opportunity to maximize value. Complete Market Update

SUPPLY AND DEMAND ARE UNBALANCED

Published data indicates that US middle-market M&A volume was down by 10% during Q1 2005 vis-à-vis Q1 2004. The decline was particularly evident in the $100-$500 million transaction size range and more modest in the less than $100 million range (where 80% of transaction activity occurred). Complete Market Update

FURTHER EXPANSION EXPECTED

Published data indicates that U.S. middle-market M&A volume was up approximately 10% in 2004. Growth was primarily seen in the $100-$500 million transaction size range. Aggregate deal value and average deal size both rose as well by approximately 20%.
Complete Market Update

'04 MOMENTUM SHOULD CONTINUE IN '05

Published data indicates that U.S. middle-market M&A volume was up 17% through October. Growth was particularly pronounced in the $250-$500 million transaction size range, up an estimated 50% during the period. Complete Market Update

POSITIVE MOMENTUM IS EVIDENT IN THE MIDDLE-MARKET

Published data indicates that U.S. M&A activity is up 15% through August in terms of volume. Growth is particularly evident in the $100-$500 million transaction size range. The less than $100 million range is growing more modestly at less than 5% year-to-date.
Complete Market Update

BREADTH AND DIRECTION ARE RETURNING TO MIDDLE-MARKET

Published data indicates that U.S. middle-market deal volume during Q1 2004 was up 15% over the corresponding year earlier period and up 4% over the previous quarter. The <$100 million transaction size range was of particular note growing by more than 8% vis-à-vis Q4 2003. Complete Market Update

MIDDLE-MARKET M&A OUTLOOK BRIGHTENS

Published data indicates that U.S. middle-market deal volume in 2003 was up by 8.4%. The hottest range for growth was transactions between $100 million and $500 million.
Complete Market Update

A NEAR-TERM UPTURN IN MIDDLE-MARKET M&A IS EXPECTED

Most dealmakers speak of increasing activity these days. However, current M&A data continues to suggest a shrinking middle market M&A environment. Complete Market Update

SIGNS OF IMPROVEMENT IN MIDDLE-MARKET M&A

MIDDLE-MARKET MERGER ACTIVITY REMAINS FLAT

Q1 2003 was a difficult period for identifying trends in middle-market M&A activity. The war with Iraq served to slow the market down and negate progress seen earlier in the year.
Complete Market Update

MODEST M&A RECOVERY EXPECTED IN 2003

The business community is poised to accelerate M&A activity in 2003. Conservative valuation assumptions and cautious lending practices will continue to guide buyers and sellers.
Complete Market Update

IS THE WORST BEHIND US?

The recent announcement of higher unemployment and significant changes to the Bush economic team call into question the economic improvements recorded to date.
Complete Market Update

SLOW BUT STEADY PROGRESS

Gradually improving economic conditions and positive developments in financing markets drive mild recovery in middle market M&A transaction volume. Complete Market Update

A NOTABLE PICK-UP IN DEAL FLOW

We have experienced a notable pick-up in transaction engagements over the past ninety days. If this is an indication of the broader market, with to-market lead times of sixty to ninety days, the market should soon see improved deal flow. Complete Market Update