At the end of April, we attended the national mergers & acquisitions conference, ACG InterGrowth, in Orlando and learned that incoming deal flow through April was slower than prior years and of lower quality. However the “buzz” was that things were picking up.
As in prior years, the challenges appear to be oriented around too much money chasing too few deals as strategic investors and aggressive financial investors are pushing up valuations. The second trend was that PE funds continue to see excellence in the portfolio and are working hard to optimize results.
For the third year in a row, we surveyed private equity investors and saw that purchase multiples are consistent for middle market companies across the 2011-2013 time period. We also found that deals are closing more quickly in 2013 compared to 2011 with the peak time from first meeting with management to deal close decreasing from six to eight months in 2011 to four to six months in 2013. Lastly, while deals are closing more quickly, we have also learned that the private equity executives are less optimistic about revenue growth within the existing portfolio in the next 12 months with a peak projected revenue growth of 10-15% in 2011 compared to 5-10% projected revenue growth this year.
In the second half of the year, we see the supply of good deals in the marketplace increasing. When combined with low interest rates and accommodative lending standards, expect a significant increase in M&A activity over the first half.
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