The logjam is breaking up

New signs of recovery in the merger and acquisition sector are slowly emerging, according to W.Y. Campbell & Company, an M&A and finance company.

Minnesota Historical Society / The 1886 log jam in the Dalles of the St. Croix River.

After crunching the numbers, WYCC found that the logjam appears to have finally broken up in the fourth quarter of 2009. Credit remains tight, which continues to dampen business, but deals are happening:

After starting out as one of the worst economic and M&A environments in recent memory, 2009 finished on a positive note with deal activity and transaction multiples extending their surge from Q3 ’09. Deal activity jumped 90% from Q3 ’09 for disclosed middle market transactions (Enterprise Value < $500 million and > $10 million). Pent up demand and improving economic dynamics appear to be driving the resurgence in M&A activity. Despite slowly improving credit markets, future deal volume growth will be limited due to an overall lack of financing and depressed 2009 earnings. Transaction multiples for Q4 ’09 increased to 6.1x enterprise value to EBITDA compared to 5.8x for all of 2009 reflecting improving credit availability and buyers becoming more aggressive in the market. We anticipate improved deal volume for transactions greater than $10 million EBITDA will be offset by continued stagnancyin smaller transactions where financing is still extremely limited.

Middle market disclosed transactions (Enterprise Value< $500 million and > $10 million) increased 90% in Q4 ’09 from Q3 ’09. In addition, the total number of all M&A transactions increased 24% in Q4 ’09 after increase 23% in the third quarter. Transactions in which value metrics are not disclosed (predominately smaller transactions within the middle-market) rose 22% in the fourth quarter reinforcing that M&A activity reached bottom in Q2 ’09.

For 2010, we believe that multiples will gradually improve as the credit markets continue to slowly unfreeze for middle market transactions and overall economic conditions maintain a positive trend towards recovery.

In summary, the conditions for M&A transactions have improved dramatically in recent months. If you’ve been thinking about selling your small business, this is a good time (or soon will be) to act.

Eric R. Voth is a serial entrepreneur, a private investor, consultant, and writer. He is author of How to Sell Your Privately Owned Company, a Basic Guide for Independent Business Owners, Baby Boomer’s Edition. Eric and his colleagues help a business Seller prepare and groom his or her company prior to offering it for sale or merger – then guide the owner through the actual process. He became involved in this field as a result of merging his own company in 1993.


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