Overall M&A Market Commentary
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Middle market M&A activity continued its decline through the end of 2017, recording another quarter of lower deal volume and lower dollar value in 4Q17. While the ten quarter negative trend in M&A activity which began in 2016 continues, there is reason for optimism. Growing business and consumer confidence induced by an improving economy, a new regulatory environment, and the much anticipated tax reform passed by Congress in late 2017, all are seen as positive influences on the 2018 M&A market. An aging business owner population coupled with abundant capital and the demand of strategic and private equity (“PE”) buyers make for a fertile M&A environment.
Large M&A deals seem to be leading the way. Late 2017 saw an escalating pace in large merger deals. Examples include: Arby’s offer to buy Buffalo Wild Wings for $2.9 billion, Broadcom’s $100 billion offer for Qualcomm, CVS Health buying Aetna, United Technologies buying Rockwell Collins for $30 billion, to name a few. The global investment bank Goldman Sachs is bullish on the 2018 merger market and forecasts that cash M&A spending will increase 6% in 2018.
The improvement in the global economy is providing support to a better 2018 deal market. The International Monetary Fund (IMF) improved its 2017 growth forecast for the global economy to 3.6% at the end of the year and is predicting 3.7% growth in 2018. This global economic tailwind is helping the U.S. economy and coupled with decreased regulation and significant tax reform is expected to lead to stronger growth in the U.S. economy. GDP growth in the U.S. was 3.1% in 2Q17 and 3.2% in 3Q17. Based on strong consumer spending for the holidays, a number of economists are predicting more than 3.0% growth in 4Q17 and for the full year as well. Even Jamie Dimon, the Chairman and CEO of JP Morgan Chase, in an interview with Maria Bartiromo believes that 4% GDP growth is possible for 2018. The duration of the post-recession U.S. economic expansion is now reaching record territory and will likely become the longest recession recovery in history.
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.