A world leader in mid-market mergers and acquisitions since 1956.

Middle Market Business Insights Q3 2015

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Transactional Overview

After multiple quarters of strong growth in North American M&A activity, things have slowed down a bit in the last few months. Still, a slight dip in activity does not signal an impending downturn but a levelling off of what has been a feverish pace. Below is a by the numbers look at H1 2015 according to data published by global research firm Bureau Van Dijk:

  • In the U.S., there were 6,237 total transactions worth a combined USD $848.58 billion over the first half of 2015, compared to 7,664 deals worth a total USD $953.07 billion in H2 2014.
  • In Canada, deal value grew 8 per cent (from USD $96.27 billion in H2 2014 to USD $103.53 billion), marking the fourth consecutive increase, despite a decline in volume from 2,125 to 1,890 transactions in the same period.



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Middle Market

In the middle market (deals between $1 million and $500 million) M&A has remained strong, driven by private equity groups looking to deploy capital and strategic companies eager to increase capabilities. Below is a look at the sectors that have experienced the greatest activity:

  • According to data from industry tracker Factset, the sectors that saw the biggest increases in M&A deal activity Q2 2015, relative to the same three month period one year ago, have been: Technology Services (526 vs. 477), Distribution Services (173 vs. 129), Finance (411 vs. 370), Health Services (144 vs. 125), and Communications (42 vs. 30).
  • Over the past 3 months, the sectors that saw the biggest declines in M&A deal volume, relative to the same three month period one year ago are Commercial Services (443 vs. 476), Consumer Services (207 vs. 234), Producer Manufacturing (171 vs. 195), Consumer Non-Durables (68 vs. 86), and Industrial Services (101 vs. 117).



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Private Equity

According to Bureau Van Dijk, private equity M&A activity in North America has kept pace with the overall macro trends slowing down as compared to the prior six months. However, while deal volume declined, value per deal increased.

  • In the U.S. in H1 2015, there were 2,650 private equity transactions worth a combined USD $149.47 billion over the six months, compared to 3,119 deals worth a total USD $111.15 billion in H2 2014.
  • While the volume of private equity deals in the U.S. declined, value rose 34%.
  • In Canada, there was a more modest value increase (10 per cent) from USD $3.60 billion in H2 2014 to USD $3.97 billion in H1 2015.



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Impact of Commodity Pricing on the Oil and Gas Sector

An area that suffered as a result of volatile commodity pricing was the oil and gas sector. The oil price per the WTI benchmark started the year at $52, dipped into the $40 range early and then clawed back up near $60. The result was a tepid M&A market. During Q1 2015 the value of global upstream oil and gas M&A deals reached $7.1 billion, a 79% decline as compared to the same period in 2014 and an 85% drop as compared to the average value per quarter since the start of 2009.

The outlook for M&A activity in the space is mixed as companies that have taken a significant financial hit may seek M&A as the answer to satisfying highly leveraged balance sheets. Conversely, similar to the economic downturn in 2008, companies that may have been exit-ready in 2014 are now patiently waiting for a bottom line recovery before seeking a transaction.

2015 Overall M&A Outlook

M&A activity for the remainder of 2015 will depend on a number of factors, including the following:

  • Economic Conditions: The US Federal Reserve’s decision to keep interest rates low has substantially lowered the cost of M&A funded by debt. For companies with limited growth opportunities, acquisitions are a natural path to bolstering market share.
  • Private Equity Impact: Many private equity firms are looking to sell portfolio companies acquired before the financial crisis as debt obligations reach maturity. Conversely, “dry powder” (unspent capital investors have committed for investing over a period of time) remains at near-record levels. This will play a significant role as private equity buyers look to put that money to work.




For additional information contact:

Douglas Nix, CA | Vice Chairman
Corporate Finance Associates | Toronto West | 905-845-4340 x211 | info@cfaw.ca