Deal Closing Rates and Multiples Increased in 2nd Half of 2010

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AM&AA Deal Stats Survey Shows Higher Deal Activity in Lower Middle Market

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The annualized closing rates for merger and acquisition transactions among private companies increased in the second half of 2010 and reported multiples paid jumped up as well 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 December 31, 2010, were compared to prior survey periods. Findings include:

  •     The total value of all reported transactions increased to $3.77 billion compared to $961 million in the first half of 2010, and $1.25 billion in the second half of 2009.
  •     Both M&A Brokers and Advisors showed an increase in deal closing rates. In the second half of 2010 M&A Brokers closed transactions at an annualized rate of 3.5 per year compared to 2.4 per year compared in the first half of 2010. The annualized closing rate for M&A Advisors in the half of 2010 increased to 3.2 per year in the second half compared to 1.8 per year in the first half.
  •     Both average and median transaction multiples increased substantially compared to prior survey periods. The average EBITDA multiple was 5.94 in the second half of 2010 compared to 5.26 in the first half of 2010 and 5.22 in the second half of 2009. The median EBITDA multiple increased to 5.75 compared to 4.75 in each of the two prior 6 month periods. The transaction multiples reported represented significant improvements compared to the 12 month recession 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 (excluding one outlier transaction that exceeded $1 billion) was $33 million in the second half of 2010 compared to $14.8 million in the first half of 2010 and $10.7 million in the second half of 2009. M&A Brokers reported an increase to an average deal size of $31.5 million compared to $7.6 million in the second half of 2009 and $14.9 million in the first half of 2010 and $7.6 million in the second half of 2009. M&A Advisors also reported an increase in average deal size to $22.8 million compared to $13.8 million in the first half of 2010 and $16.2 million in the second half of 2009.
  •     Manufacturing continued to be the top industry in both number and dollar volume of deals, echoing results from all prior surveys.

“The deal making climate definitely improved in the second half of 2010 in the lower middle market, where most of our members provide their services,” said Dr. K. Perry Campbell, Chair of the AM&AA Market Research Committee, and Managing Director of the Portland/Vancouver office of ACT Capital Advisors, LLC. “Average transaction size increased, deal closing rates increased, and transaction multiples increased as well. Conditions are much improved compared to what we saw during the depth of the recession.”

The great majority of reported deals (87 percent) were for private transactions less than $50 million in size, and most (67 percent) were in the $1 million to $25 million range. The participants included M&A Brokers (48.9 percent), Advisors (38.6 percent) and buyers (12.5 percent). M&A Brokers include members who are compensated largely on a success fee basis. M&A Advisors are generally those compensated on an hourly or fee-for-service basis.

“It is very important for our members 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 increase in deal activity along with increased transaction multiples is very encouraging for our members and their clients.”

About AM&AA

The AM&AA is the leading association and credentialing body for middle market M&A professionals. Our leadership and people have unrivalled 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 Capital Advisors, LLC
Alliance of Merger & Acquisition Advisors

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Diane Niederman
The Alliance of M&A Advisors
(312) 856-9590
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