Great Lakes regional M&A update - Fourth quarter, 2015

Market overview

The Great Lakes regional M&A newsletter provides a recap of middle-market transactions where either the target or buyer is located in Illinois, Indiana, Michigan, Minnesota, Ohio, or Wisconsin. For this newsletter, “middle-market” is defined as transactions with enterprise values between $15 and $150 million.

Economic and market data

After an above average start to the year, middle-market M&A transactions in the Great Lakes region declined during 2015’s third quarter and further in 2015’s fourth quarter. As illustrated below, the number of deals has steadily fallen from 94 during 2014’s fourth quarter to 45 during 2015’s fourth quarter. Additionally, during the 2015’s fourth quarter, the aggregate value of deals with reported transaction values came in significantly below the previous three comparable quarters. This continues the downward sloping trend as each of the last three quarters have come in below the trailing three year averages in both the number and aggregate value of deals. While the trend line has been downward sloping, low deal volume and high EBITDA multiples are enticing companies to consider beginning the sale process, the results of which are expected to be demonstrated in the market in 2016. This expectation is supported by a 6.2 percent increase in the average value of deals during 2015 compared to 2012-2014.

Great Lakes regional middle-market M&A activity: Number and aggregate value of deals with reported value

Source: Capital IQ and Baker Tilly Capital, LLC Insights

Great Lakes regional middle-market M&A activity: Average size of deals with reported value

Source: Capital IQ and Baker Tilly Capital, LLC Insights

2015’s fourth quarter in the Great Lakes region continued to experience increased activity from financial sponsors, completing 15.6 percent of all transactions, compared to 6.4 percent, 9.7 percent, and 10.9 percent during the first, second, and third quarters of 2015, respectively. The trailing three year average was 8.6 percent, indicating a growing appetite from private equity. Top middle-market strategic acquirers over the last 12 months were Arthur J. Gallagher & Co. and American Builders & Contractors Supply Co., Inc. with 24 and 10 acquisitions, respectively. Audax Group was the most active middle-market financial sponsor in the region, with six acquisitions over the last 12 months.

M&A activity by buyer type Q4-2015

Source: Capital IQ, excludes Baker Tilly Capital deemed outliers.

M&A activity by industry Q4-2015

Source: Capital IQ, excludes Baker Tilly Capital deemed outliers.

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