The headline from a June 22, 2012 Reuters article claimed that economic recovery has stalled, with global M&A activity dropping 25% in the first half of 2012. More importantly, “U.S.-targeted M&A fell particularly sharply in the first half, dropping 44 percent from last year.” This could, however, be misleading: while the dollar value of deals may have declined in 2012 versus 2011, we are seeing M&A professionals at middle market private equity funds and investment banks busier than ever.
What is causing this disconnect between what we are seeing at CMF in the business of middle market M&A and in national press headlines? Potential answers include:
- Middle market M&A operates on an increasingly more divergent path from larger deals
- Buyer and lender diligence has increased significantly, resulting in deals taking a longer time to close – many of the deals that should have closed in Q2 are likely to close in Q3
- The professionals at PE funds are extremely busy, selling the existing portfolio as well as buying new platforms. We suspect that many of them are operating at full capacity, particularly when we hear things like, “We would love to look at this opportunity, but we just don’t have the time and/or we are wrapped up in another deal right now”
Our prediction is that deal volume (both number of transactions and dollar value of transactions) in the middle market (deals valued at under $500M) will increase substantially in the third quarter 2012 compared with 2011. Prepare for a busy August!