State of the M&A Markets – Year-End 2010

After a challenging 2009, M&A transaction activity saw significant improvement in 2010. This increase is due to a number of factors, including a recovery in business valuations leading to more motivated sellers, an easing in the financial and credit markets, and the global economic recovery. This momentum seems to reflect a renewed confidence and the outlook for 2011 appears to be bright.

Market Activity

Transaction activity in 2010 showed significant improvement in all segments with total deal volume at their highest levels in 3 years. For transactions less than $50 million, volume grew at an impressive 26% compared to 2009, but even more impressively surpassed total deal volume in 2007.  Transactions $50 to $100 million exhibited the largest growth at 88% compared to last year, but continue to lag 2007 levels. For all other segments, 2010 brought positive growth over the same period, but not at the same pace. This expansion was helped in part to strengthening company fundamentals, rising valuations, and recovering financial markets.


Valuation multiples also continued to show impressive growth. The greatest improvement was in the $50 to $100 million segment, increasing from 6.9x EBITDA in 2009 to 12.1x EBITDA in 2010. While valuations seem high for the current market and valuation range, it reinforces evidence from earlier in 2010 that buyers are willing to pay a premium for good companies operating in attractive industries. This increase in valuations has had a direct effect on transaction volume as sellers who waited patiently on the sidelines the last couple of years for values to rise have become more active in the marketplace.


Given the increased availability of leveraged financing and an improvement in valuations, 2010 showed a marked resurgence in private equity M&A activity relative to 2009, with growth of 137% and 59% in terms of dollars and volume, respectively. Strategic M&A transactions continued to be the principal source of deal activity in 2010 as companies with cash and access to financing on favorable terms pursued acquisitions that provide growth, synergies and diversification. The total number of transactions increased by 38% for strategic acquirers and dollars spent increased a modest 2% compared to 2009.


The marked improvement in M&A activity during 2010 bodes well for 2011, even against the backdrop of continued economic uncertainty, market volatility and regulatory reforms. Strategic M&A transactions will continue to lead the charge in deal activity as the record levels of cash on corporate balance sheets continues to be deployed seeking out avenues for growth and market share. Additionally, the ever-improving conditions in the acquisition financing markets and the estimated $485 billion in capital overhang will further facilitate acquisitions by private equity firms.

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Debbie Stephenson

Debbie Stephenson is a former Content Marketing Manager at Firmex.