Column: Dealmaking rolls on in Q2

By Devon Fleming

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Let me preface by saying that I focus on deals in the lower end of middle markets, those valued at $50 million and under, which is not coincidentally the majority of the U.S. deals by volume. Of the 12,880 U.S. deals completed in 2015, just over 10,000 were valued at $10 million and under, according to Statista.com.

As a deal facilitator, I survey the market and look for indicators both from economic drivers as well as other findings from mergers and acquisitions leaders. Early this year, with volatility in the stock market and impending political uncertainties, there was widespread concern that deals would be put on the shelf. But the reality is that these factors have not prevented buyers from pursuing a business purchase.

In fact, 75 percent of advisers included in the IBBA Market Pulse Survey indicated there was no impact from the instability of the stock market. The findings also showed that sellers did not feel a sense of urgency with the elections heating up in the news.

Therefore, the key drivers are still working in favor of M&A: an aging population of business principals, a prolonged period of low interest rates and a lack of inflation. On the other hand, there are always concerns, the greatest of which is a lack of global growth, as well as inflated enterprise values.

With companies struggling to find organic growth, buying growth continues to be the strategy of choice for those who can do so. Private equity groups, or PEGs, are still the most eager buyers, with huge amounts of “dry powder” — capital that has been raised but awaits being invested — although they are less optimistic than this time last year. Smaller strategic acquisitions are a big trend among all buyers who are looking to take advantage of opportunities over the next 12 months.

While most industries are seeking to consolidate with these favorable conditions, technology as a sector continues to lead the way. Also, technology continues to disrupt and redefine both traditional business models as well as the dealmaking process, blurring lines between industries. As a sector, oil and gas and then health care are next in line in projected preference, although most industries are seeking to either acquire strategically or be acquired to take advantage of economies of scale.

Another trend we are seeing is a recapitalization. In one common scenario, a business principal sees an exit on the horizon but wishes to grow the business in advance of a sale. He seeks to protect his employees and ideally wishes to grow or make strategic acquisitions while positioning his company for a final exit as a bigger company. Private equity groups love to perform these transactions, as the business principal essentially sells a portion of the company, taking out the equivalent equity — always a good thing — but continues to run the company. The PEG offers resources, such as financial and human resources to facilitate growth.

Whether buying or selling, growth is the optimal word with all those involved in the dealmaking process. Strategic buyers are looking for growth through acquiring, private equity groups are seeking add-on and tuck-in acquisitions to grow their platform investments and sellers who want to exit their business in the next several years are looking for growth in advance of a sale.

With 2016 marching on, don’t expect much of a summer slowdown as most professionals and leaders in the M&A industry continue to have a large appetite for doing deals.

Devon Fleming is a senior adviser at VR Mergers and Acquisitions in New Haven. She can be reached at 203-772-3773, ext. 105, or devon@vrnutmeg.com

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About the author

Devon Fleming
Devon Fleming is a Senior Associate in Mergers and Acquisitions/Business Sales with over 20 years of sales and marketing experience. She spent a dozen years on Wall Street working at Bloomberg Financial Markets and Dillon Read as well as another decade as principal/ entrepreneur and management consultant for her own company. Devon is known for publishing a regional "zagat-style" resource guide; is passionate about empowering women in business and is active in numerous, family-oriented philanthropic initiatives in lower Connecticut. When not working, Devon can be found spending time with her family, volunteering at her favorite animal shelter or blogging about being a "Household CEO".

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