Overall M&A Market Commentary
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Middle market M&A activity continued to be soft in 2Q17, recording the 8th consecutive quarterly decline in deal volume. A recovering stable economy, low interest rates, reduced regulation and a more business friendly Federal Government were all expected to lead to more robust M&A activity and a strong deal making environment in 2017. However, the extremely distracting partisan drama in Washington has created political uncertainty and has slowed progress on the implementation of what many hope will be a more business friendly agenda. Anticipated healthcare policy fixes and income tax reform have been slowed reflecting the difficulty in making big policy changes in a polarized political environment. We believe this uncertainty in Washington D.C. has caused private business owners to pause in their decision process to sell their businesses.
We are also seeing longer sell side deal processes and more M&A deals pulled from the market. High company valuations are creating the tendency for buyers to expect a “perfect asset” and push back on deals where their expectations of company quality are not met. In our opinion, the more intense due diligence processes coupled with the U.S. political environment has muted U.S. M&A activity. In contrast, European M&A activity has surged in recent months because of optimism for the region’s economic prospects. According to Thompson Reuters, European M&A was up 45% year-over-year in the second quarter while the same data set showed U.S. M&A activity declined 36% in the second quarter.
The global economy continues to gain momentum and U.S. consumer sentiment is strong. Perhaps once we move beyond the current political distractions, there will be a more vigorous political debate on business regulations, corporate and individual tax policy and ways to grow the U.S. economy. It is our hope the result of this debate and the creation of a bipartisan economic agenda will lead to a more sustained positive U.S. business environment.
For additional insight on middle market M&A, valuation multiples, strategic buyer / financial sponsor activity, and more please download the full copy of the Prairie Middle Market Perspective.