Great Lakes regional M&A update: Q3-2016

M&A activity

Baker Tilly Capital, LLC’s Great Lakes regional M&A update provides a recap of middle-market transactions where either the target or buyer is located in Illinois, Indiana, Michigan, Minnesota, Ohio or Wisconsin. The middle-market for purposes of this newsletter is defined as transactions with enterprise values between $10 and $200 million.

Middle-market M&A transactions in the Great Lakes region continued to fall during 2016’s third quarter (Q3-2016). As illustrated below, the number of deals with reported values has fallen to 29 during Q3-2016 and an average of 37 deals over the first three quarters of 2016. The 37 deal average through 2016 is lower than each of the previous four years (58 in 2012, 44 in 2013, 51 in 2014 and 49 in 2015). During Q3-2016, the aggregate value of deals with reported transaction values at its lowest point since Q2-2013. This continues the downward sloping trend through each of the last five quarters. While the trend line for number of transactions and deal value have been downward sloping, higher EBITDA multiples are continuing.

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

Source: Capital IQ and Baker Tilly Capital, LLC Insights

The number of middle market M&A deals in the Great Lakes Region with or without reported values has also steadily declined. There were 292 closed deals during Q3-2016 compared to 354 during Q2-2016 and 360 during Q1-2016. Throughout 2012 through Q3-2016, the highest number of closed deals during a quarter was 562 during Q4-2012 and the lowest was 277 during Q1-2013.

As displayed below, the average value of deals with reported values decreased to $62.7 million during Q3-2016 compared to $70.5 million during Q2-2016 but is still significantly above Q1-2016 as well as the average of the past four years.

Average size of middle-market deals with reported values – Great Lakes region

Source: Capital IQ and Baker Tilly Capital, LLC Insights

The graph below depicts the quarterly trend of average EV/EBITDA multiples in the Great Lakes region for transactions of all sizes. During Q1-2016, the average EV/EBITDA was 10.9x, which has steadily risen from 8.9x during Q2-2015.

Average EV/EBITDA – Great Lakes M&A

Source: Capital IQ and Baker Tilly Capital, LLC Insights

During Q3-2016, transactions with financial sponsor buyers decreased slightly to 7.1% compared to 9.8% during Q2-2016. YTD 2016’s average of 7.7% financial sponsor buyers is running below 2015’s average of 11.8%.

M&A activity by buyer type Q3-2016

M&A activity by industry Q3-2016

Select transactions by industry >

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

Financial sector transactions held the highest percentage of deals closed with reported value during Q3-2016, followed closely by industrial and materials and healthcare and biotechnology sector transactions.

Of the deals with reported primary target locations during Q3-2016, Illinois had the highest activity with nine deals, followed by Michigan with six deals. The highest value acquisitions by state and the highest value acquisitions with reported enterprise value / EBITDA or enterprise value / revenue multiples are displayed here.

Source: Capital IQ and Baker Tilly Capital, LLC Insights

View the full Great Lakes M&A update >


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