North American Middle Market M&A Update Q1 2017

Market Overview

2016 was another strong year for M&A

Despite several uncertainties driving the M&A environment, including the presidential election, a continued low-growth economy and concerns that the period of low interest rates was coming to an end, middle market enterprise value/EBITDA multiples remained high in 2016 at 8.0x vs. 8.2x in 2015. The slight decrease in value can largely be attributed lower multiples associated with increased activity in lower middle market transactions and an increase in add-on transactions. The large amount of available capital, increased corporate acquisition activity and buying power, improved financing markets and expected policy reforms from the new administration position 2017 to be a strong year for M&A activity.

Optimistic M&A Outlook with New Administration

Potential policy reforms are expected to increase M&A activity in 2017


Strategic Buyers Drive High Purchasing Multiples

High trading multiples and large cash balances enable strategic buyers to pay higher multiples

An increase in corporate purchasing power is expected to keep multiples high in 2017. The S&P 500 price-to-earnings ratio is currently 25.5x, compared to a low of 13.5x just six years ago. The increased trading multiples and excess cash on balance sheets have led to an increase in M&A activity. Multiples are expected to remain high as corporates increase M&A activity and justify loftier acquisition prices given where they are trading.

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