At the end of April, we attended the national mergers & acquisitions conference, ACG InterGrowth, in Dallas – what a difference between this year’s event and the same conference in 2009 in Las Vegas. If 2009 represented a clear sign that we were spiraling downward into a long, hard slog, the optimism surrounding the event this year indicates that middle-market M&A is back on track : private equity investors seem to have not only redefined their investment theses, but also revised the value creation machines to drive these theses, and have arisen with executive confidence that they can generate superior returns for their investors.
The challenges of 2009 were oriented around survival and cost control. For 2012, the challenges appear to be oriented around too much money continuing to chase too few deals, strategic investors and aggressive financial investors pushing up valuations, and ongoing issues in recruiting and retaining executive talent that has the comprehensive skill set to compete in an increasingly complex, time-sensitive, global marketplace.
For the second year in a row, we surveyed private equity investors and found that EBITDA multiples in the middle market are, on average, consistent with the prior year, deals are closing quicker, and the average rate of organic sales growth in the existing portfolio is expected to increase at a slower, but nevertheless respectable, 5-10%.
Expect a buoyant M&A market for the balance of 2012, but it is anyone’s guess for 2013 given the political, regulatory, and tax-related uncertainties associated with the upcoming election.
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