M&A Update Q4 2010

Posted by John Slater on January 1, 2011

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Global M&A volume (closings) has recovered moderately from a low of $1.8 Trillion in 2009 or about half the market peak of $3.6 Trillion in 2007. We estimate 2010 volume around $2.3 Trillion, up around 28% from 2009.

Source Capital IQ; *2010 Focus Investment Banking Estimate

In the U. S. private equity activity continues to increase, with the likelihood that for the full year 2010 $ invested by PE firms will exceed $100 billion or approximately double the 2009 trough. This number is still down approximately 85% from the 2007 peak.

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Source Pitchbook

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Focus has seen a good recovery in M&A activity in 2010, with total closed M&A transactions expected at 12 for the year compared to 8 in 2009. More important, for consistently profitable companies in favored sectors (e.g. IT services and software) we have witnessed pricing multiples reminiscent of those at the peak. Weak companies battered by the recession on the other hand have had some difficulty getting traction in this market.

Recent activity leads us to believe that the recovery in deal activity will continue into 2011 and may gain strength. We have seen indications that PE firms, essentially absent from the market in 2009, are becoming more aggressive in their activities and more willing to look at firms outside the most popular sectors. This is driven in part by the record level of “dry powder” in the hands of PE firms, approaching $500 billion. At some point this money must be invested or given back to the limited partners.

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Source: Pitchbook

Additionally we see continued strength among strategic buyers that have become quite active in a number of industries. With revenues stagnant in many cases, these firms must look to acquisitions to create the growth expected by equity market investors.

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