Deal Closing Rates Down, Multiples Steady in 1st Half of 2010

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AM&AA Deal Stats Survey Illuminates Lower Middle Market Private Deal Activity

"Connecting Leading M&A Professionals To Build Relationships, Share Resources and Create Value"

The annualized closing rates for merger and acquisition transactions among private companies decreased in the second half of 2009 but reported multiples held steady according to the Deal Stats survey released today by the Alliance of Merger & Acquisition Advisors® (AM&AA), the leading association and credentialing body for middle market M&A professionals.

The Deal Stats survey results for the 6-month period, ending June 30, 2010, were compared to prior survey periods. Findings include:

  •     The total value of all reported transactions was down to $961 million in the first half of 2010 compared to $1.25 billion in the second half of 2009.
  •     Both M&A Brokers and Advisors showed a decrease in deal closing rates. In the first half of 2010 M&A Brokers closed transactions at an annualized rate of 2.4 per year compared to 3.3 in the 2nd half of 2009 and 2.6 in the prior twelve months ending in June 2009. The annualized closing rate for M&A Advisors in the first half of 2010 dropped to 1.8 per year compared to a rate of 8.1 per year in the second half of 2009, and 4 per year in the prior twelve months.
  •     Both average and median transaction multiples were essentially unchanged compared to the prior 6 months. The average EBITDA multiple was 5.26 in the first half of 2010 compared to 5.22 in the second half of 2009, and the median was unchanged at 4.75. Still these multiples were improvements compared to the 12 month period ending June 2009 when the average EBITDA multiple across all industries was 4.69 and the median was 4.23.
  •     Average deal size reported by all members was $14.8 million in the first half of 2010 compared to $10.7 million in the second half of 2009. M&A Brokers reported an increase in average deal size from $7.6 million in the second half of 2009 to $14.9 million in the first half of 2010. Conversely, M&A Advisors reported a decrease in average deal size from 16.2 million to $13.8 million.
  •     Manufacturing continued to be the top industry in both number and dollar volume of deals, echoing results from all prior surveys.

“Deal making in the lower middle market continued to be challenging for our members in the first half of 2010,” said Dr. Perry Campbell, Chair of the AM&AA Market Research Committee, and Managing Director of the Portland/Vancouver office of ACT Consultants, Inc. “Average transaction size increased overall, but deal closing rates have still not recovered to pre-recession levels, although transaction multiples have stabilized well above the levels we saw during the depth of the recession.”

The great majority of reported deals (95 percent) were for private transactions less than $50 million in size, and most (92 percent) were in the $1 million to $25 million range. The participants included M&A Brokers (55.4 percent), Advisors (23.0 percent) and buyers (21.6 percent). M&A Brokers include business brokers, intermediaries and investment bankers who are compensated largely on a success fee basis. Advisors are generally those compensated on an hourly or fee-for-service basis.

“It is very important for M&A Brokers and Advisors to track trends in the active lower middle market,” said Mike Adhikari, president of AM&AA and president and owner of Illinois Corporate Investments, Inc. and Business ValueXpress. “The continuation of stable transaction multiples in this post-recession period is a positive trend. Coupled with the dry powder in the hands of private equity groups and strategic buyers and improved financing availability, perhaps these multiples may be attractive enough to entice more sellers to leave the sidelines.”

About AM&AA

The AM&AA is the leading association and credentialing body for middle market M&A professionals. Our leadership and people have unrivaled multidisciplinary expertise in the financial services industry. AM&AA members represent sellers and buyers of small and middle-sized businesses ranging up to $500 million in transaction value. Their services are seller representation, buyer representation, due diligence, accounting financing, business valuation, tax planning, legal, strategic, other advisory and transaction services. The AM&AA offers members a solid platform for professional collaboration. http://www.amaaonline.org/

Deal Stats Sponsors

Financial support for the Deal Stats survey was provided by:

Business ValueXpress
ACT Consultants, Inc.
Alliance of Merger & Acquisition Advisors

Contact:
Diane Niederman
VP Marketing
AM&AA

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Diane Niederman
AM&AA
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