Great Lakes region M&A activity: Third quarter 2015

Baker Tilly Capital, LLC’s Great Lakes Region 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. The “middle market” for purposes of this newsletter is defined as transactions with enterprise values between $15 and $150 million.

After an above average start to the year, the third quarter of 2015 yielded mixed results. As illustrated below, the number of deals has steadily fallen from 90 during the fourth quarter of 2014 to 65 during the third quarter of 2015. Additionally, during the third quarter of 2015, the aggregate value of deals with reported transaction values came in 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 attracting companies to begin the sale process, the results of which are expected to flood the market in 2016.

This expectation is supported by a 6.0 percent increase in the average value of deals year-to-date compared to 2012 – 2014. It is also expected that the fourth quarter of 2015 will bring significant increases in both the number and aggregate value of deals as buyers attempt to close acquisitions prior to year end. The number of deals in the fourth quarter from 2012-2014 increased by an average of 49 percent compared to the average of the trailing three quarters. Based on M&A activity year-to-date compared to the same period from 2012 – 2014, the total number of deals closed in 2015 is projected to be approximately 300 while the aggregate deal value and average value per deal is expected to be approximately $17.5 billion and $57.3 million, respectively.

The third quarter of 2015 in the Great Lakes region continued to experience increased activity from financial sponsors, completing 10.9 percent of all transactions, compared to 6.4 percent and 9.7 percent during the first and second quarter 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 twelve months were Arthur J. Gallagher & Co. and ABRA Auto Body & Glass, LP with 27 and 21 acquisitions, respectively.  Audax Group was the most active middle market financial sponsor in the region, with five acquisitions over the last twelve months.

Of the deals with reported primary locations, Illinois had the highest activity in the third quarter of 2015, with 91 deals, following by Ohio and Michigan at 66 and 46 deals, respectively. The highest value acquisitions by state and the highest value acquisitions with reported Enterprise Value/EBITDA multiples are displayed below.

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