North American Middle Market M&A Update Q4 2017

Market Overview

Middle-market M&A posts record valuations


2017 has proven to be a resilient M&A market with transaction multiples at all-time highs. Strategic and financial buyers are flush with cash and there is more demand for deals than there are deals in the market, creating ideal valuation conditions for sellers. The resiliency and strength of the overall market drives Quarton’s view that 2018 will be another strong year for sellers in the middle market. The highlights below support a strong 2018 outlook:

  • Average middle market M&A transaction multiples are the highest since pre-recession
  • Capital availability remains at all-time highs with S&P 500 companies maintaining a record $1.6 trillion of cash on their balance sheet and $900 billion of North American private equity “dry powder” available
  • The debt markets remain at historically favorable levels with the average leverage for middle market transactions the highest since pre-recession
  • The S&P 500 hit a new high in November, crossing the 2,600 mark for the first time


Proposed Tax Reform

The proposed new tax reform framework could have huge implications on capital allocation

The Senate recently passed the G.O.P.’s proposed new “Unified Framework for Fixing Our Broken Tax Code” plan, propelling the proposed tax cut legislation into a position to undergo final approval in the coming days. The plan centers primarily around tax cuts through a simplified tax code. A summary of the business tax provision proposal is outlined below:

The proposed tax reform will increase cash balances for corporations, which is expected to increase business investments in capital expenditures for organic growth opportunities, as well as investments in acquisitions. We expect the proposed tax reform to support a strong appetite for acquisitions among the strategic buyer community in 2018.

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© 2018 Quarton International.