State of the M&A Market – Q2 2010

Merger and acquisitions transaction activity picked up in the second quarter of 2010. The increase is due to a number of factors. Deal momentum improved as the economy continued to show modest signs of improvement, debt markets became more active and valuations remained strong for companies that performed well. Additionally, a segment of business owners are motivated by pending tax law changes that will increase taxes and lower net proceeds after 2010, unless there is an extension of the Bush tax cuts. As a result, companies are evaluating liquidity alternatives resulting in the uptick in transactions. For companies that are performing well this is a good opportunity for shareholders to maximize the proceeds from a sale.

Market Activity

Transaction activity increased in all valuation segments in the 2Q10. The largest increases were in the $50 million to $100 million range and above $250 million; transactions in these segments increased by 44.2% and 73.5%, respectively. For acquisitions below $50 million, the improvement was 17.8% versus 1Q10 while transactions between $100 million and $250 million expanded 15.2%. The data demonstrates that activity is improving as all segments underwent a period of robust growth with an emphasis on the larger transactions.

Transaction Volume and Multiples 1,2

Notes: 1 – Data only includes transactions with a published value. 2 – Source: CapitalIQ


Multiples dipped in nearly all valuation segments except for transactions below $50 million. While there was a drop in the multiple, valuations are still healthy. In 1Q10, transaction multiples appeared abnormally high in the $50 million to $100 million valuation range. This segment underwent the largest decrease in value in 2Q10. The 20.1x multiple in 1Q10 seemed extraordinary in any market and not fully indicative of all the transactions in this value range. The elevated multiple was probably due to imperfect information in the marketplace. Since the multiple in 1Q10 was artificially high the dip, in reality, is probably not as severe. This segment’s valuation data for 1Q10 appears to be unique and multiples were still good in 2Q10. In addition, transaction values decreased above the $100 million threshold, although not as significantly, but are still above recent levels indicating that valuations remain strong.

Strategic vs. Financial Buyers 1,2

Notes: 1 - Data includes transactions with or without a published value. 2 - Source: CapitalIQ
Notes: 1 – Data includes transactions with or without a published value. 2 – Source: CapitalIQ

In 2Q10, strategic and financial investors increased the dollar value of their investments and transaction volume. Financial investors increased acquisitions dollars by 75% in 2Q10 versus 1Q10, while the total number of transactions increased by 26.6%. Strategic investors were also more active by both measures with the dollar value of acquisitions increasing 19.1% and total volume expanding 0.9%. Average deal size for strategic and financial investors grew in 2Q10. Private equity transaction size expanded 38.2% from $67.5 million in 1Q10 to $93.3 million. Meanwhile, the average strategic transaction value increased 17.9% from $58.7 million to $69.2 million over this same period.


Hopefully, the uptick in activity in 2Q10 is a sign of increased transactions to come. Business owners are monitoring the improving market trying to time the sale of their company. Additionally, buyers are becoming much more aggressive in their efforts to secure and complete transactions, but remain selective. Overall, if your company is performing well now is a good time to sell due to the upcoming change in tax laws and high valuations. Companies that are average to below average performers will still need to undertake careful consideration before undergoing a sale process.

If you have comments or questions about this article, or would like more information on this subject matter, please contact us.
Michael Rosendahl

Investment Banking
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