State of the M&A Market – Q2 2011

Positive trends in M&A transaction volume continues in the 2011 second quarter. A number of factors have contributed to this, including continued recovery in corporate profits, the debt and equity market stabilization, historically low interest rates.  The strategic buyers are focused on growing the top line, and financial buyers are needing to put their LP funds to work. Nonetheless, concerns still remain regarding high levels of unemployment, high commodity prices, government budget deficits, and conflicts abroad.
Market Activity

Transaction activity during the second quarter of 2011 increased across all segments when compared to the second quarter of 2010, marking an impressive stretch of seven straight periods with quarter-over-quarter growth. M&A transactions are also up on a sequential quarterly basis, rebounding from a slight dip in overall activity during the first quarter, reflecting typical seasonality. Acquisitions during 2Q11 in the $50 to $100 million and $100 to $250 million segments lead all segments with 51.4% and 52.7% growth, respectively, versus 2Q10. Transactions less than $50 million continue to lead all segments in total volume, with levels surpassing those seen before the 2008 financial crisis.

Transaction Volume and Multiples 1,2

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

Driven by increased deal activity, valuation multiples (above) show an increase in 2Q11 compared to 2Q10 in all but one segment. Prolonged economic, political and regulatory uncertainty continue to compound the difficulty buyers experience in assessing earnings and consumer demand in a slower growth economy, making valuations much less certain. Median valuation multiples in the less than $50 million, $50-$100 million, and greater than $250 million range increased over 1Q10 median multiples while median multiples in the less than $100-$250 million segment decreased by 21.9% versus 2Q10.  Be careful when analyzing these market multiples as not all financial information is reported, and there is no adjustment for distressed transactions that could skew the results. One should focus on the trend, which indicates improved and stabilized during the past year.

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

Deal volume in the private equity sector has increased sequentially by quarter for the last 4 quarters and 2Q11 deal volume has increased by 73% versus 2Q10. In terms of deal $’s, financial buyers spent 45% more on buyouts in 2Q11 compared to 2Q10. Financial buyers continue to be driven by the more than $477 billion of capital overhang available to them as investment deadlines loom over the next few years. Strategic buyers have also continued to increase their deal activity with both deal volume and dollars up quarter-over-quarter. Deal volume increased from 2,615 transactions in 2Q10 to 3,250 transactions in 2Q11 while deal $’s increased from $181 billion to $236 billion in 2Q10 and 2Q11, respectively.


The M&A market performance over the two most recent quarters in 2011 suggest that the anticipated demand for healthy, middle market companies exists. While current activity is being tempered by concerns over economic, political and regulatory uncertainty, strategic and financial buyers are still actively seeking acquisitions and have the dry powder to undertake these transactions.

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Michael Poole

Investment Banking
Orlando Office

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