State of the M&A Markets – First Quarter 2012

We often highlight articles from our customers that would be interesting and relevant to the Firmex community. Enjoy this in-depth report by Michael Poole of PCE Investment Banking, on the state of the M&A markets for Q1 2012.

The volume of M&A transactions remained relatively flat in first quarter of 2012 when compared to recent periods.  However, an interesting observation is that M&A activity now (15,488 transactions) exceeds the transaction volume of FY 2007 (12,363) by approximately 25%. Remember, that FY 2007 was the peak of activity for M&A transactions.

Market Activity

As depicted in the graphics below, overall transaction volume by strategic and private equity (“PE”) buyers showed signs of significant and consistent growth during the past three years. Since the low point in the 3rd Quarter of 2009, PE transactions have swelled by 148% on a 12-month rolling basis through the 1st Quarter of 2012. The PE activity is returning to historical activity levels of approximately 15% of total deal activity. Strategic Buyer activity during this same time frame has expanded 73%. Transaction volume on a quarter to quarter basis appears to be reaching a plateau for both types of buyers.

Our research shows that published or disclosed purchase multiples have dipped only slightly in the most recent 12-months for both sets of buyers. However, we believe that these multiples are misleading especially for the smaller transactions due to the limitations of the data available. In our next M&A report we will provide a deeper analysis of the reported market multiples.

Private Equity vs. Strategic Buyers by Volume (Rolling 12-month)

Source: S&P Capital IQ and PCE Investment banking

The Chart below illustrates the reported value of transactions for the past few years. On quick review, one might assume the average transaction has substantially decreased the past few quarters as the volume has increased. This would be wrong. The drop in transaction value is the result of a lower percentage of transaction with values reported and potentially due to smaller deals above $250mm in value segment. During the past few years, approximately 55% of PE transaction values and only 40% of Strategic transaction values are reported. However, in the past two quarters reporting of values has been less than these averages. (This is the last you will see of this chart in our newsletter due to the misleading messaging as a result of limited information)

Private Equity vs. Strategic Buyers by Value 1,2

Source: S&P Capital IQ

Our analysis of average transaction value provides some interesting insights. The average transaction size has remained stable the past few years which includes the recent economic collapse. The only exception is the over $250mm catagory, and this fluctuation has more to do with the size of the category than any other variable. The table below provides the rounded average transaction size (excluding>$250mm) for Strategic and PE buyers for the past few years.

Another interesting observation is the difference in transaction size for Strategic versus PE for transactions less than $50MM. This difference is most likely a reflection of the PE buyers needing to have “platform” acquisitions, creating the need for larger deals.


The recent level of M&A deal activity suggests a robust marketplace for FY 2012 and beyond. We always have the spector of economic concerns and the unsettled political environment to bring some headwinds to the marketplace. There are plenty of funds, both equity and debt, to fuel the high activity level. The uncertainty regarding the income tax rates should be a strong impetus for owners to seek liquidity strategies. However, we are hearing that this uncertainty and others are starting to cause business owners some hesitation in entering the M&A arena.

Michael Poole can be reached at 407-621-2112, or via email at if you would like to discuss this article.

Debbie Stephenson

Debbie Stephenson is a former Content Marketing Manager at Firmex.