Middle Market M&A activity warmed up in 2010 from a tepid 2009 and 2008

03.12.2011 - Mergers & Acquisitions

That headline regularly bandied about by media pundits today is sure to “warm the cockles of the heart” of owners of privately held middle market companies who think the M&A market is returning to levels seen in 2006 and 2007.

Our take, however, is somewhat different. It is our belief that much of 2010′s uptick in volume was due primarily to owners of privately held companies rushing to sell their companies before the pending tax increase took place. Don’t blame them a bit, it’s the American way.

That belief is borne out by listening to what highly experienced private equity professionals have to say at the multitude of M&A and private conferences. Listen closely and more than likely you’ll hear a much different refrain more like “where’s the deal flow?”

Their plaint is easily understandable as they are sitting on vast amounts of capital that needs to be deployed, about $490 billion according to PitchBook, with some 58% of that being raised in 2006 and 2007. Given the typical fund life cycle it is no wonder they have such a dilemma.

Recent discussions with senior executives of several large commercial banks confirm only a minimal increase in the number of M&A transactions particularly at the lower end of the middle market despite greater credit availability. They all tell us they are under great pressure to add assets and that the bank’s overall risk appetite has increased.

If your business is performing well there is probably no better time to sell given the amount of private equity capital available coupled with abundant cash on corporate balance sheets is likely to ameliorate the valuation gap of the last several years.