North American Middle Market M&A Update Q2 2017
Coming off a strong year in 2016, the M&A market has kept pace in Q1
The M&A market remains strong following the presidential election. Equity
markets reached record highs in the first quarter, and the lowest unemployment
rate since the downturn reflect positive market fundamentals. Although
transaction multiples were slightly down compared to 2016 at 7.6x vs. 8.0x,
multiples are still above 10-year averages and the overall strength of the market
will continue to drive M&A activity in 2017.
Favorable Deal Terms for the Seller
Competitive deal environment is driving better terms for sellers
Indemnification caps and escrow amounts as a percentage of total enterprise
value have continued to decrease over the past five years favoring the seller for
deals between $10 million and $250 million of enterprise value, according to GF
Data. The indemnification cap refers to the general indemnification provided by
the seller to the buyer against breaches of reps and warranties against the seller.
The average cap on indemnification of reps and warranties was 16% in 2016
compared to 18% in 2011. Escrow amounts as a percentage of total enterprise
value, have also decreased, giving sellers more upfront money when a
transaction is closed.