M&A activity shows improvement as buyers rush to spend reserves

GREELEY – Merger and acquisitions activity in the country shows improvement thanks to lower interest rates and pent-up desires to spend what experts call “dry powder.”

Matt Rupprecht, managing director of PMCF, the investment banking arm of accounting firm Plante Moran, told attendees at BizWest’s Mid-Year Economic Forum that all signs are positive for increased activity as the year goes on. The economic forum was held Tuesday morning at the University of Northern Colorado in Greeley.

Rupprecht listed several factors affecting M&A activity, including:

• Lower interest rates that reduce financing costs.
• Ready cash known as “dry powder” that private equity investors have available.
• Aging private equity investments that owners want to sell in order to exit the market.
• Consolidation among fragmented industries.
• Population growth, which is higher in Colorado and the mountain region than nationwide.

“Overall, the U.S. economy has moved from recovery to expansion,” Rupprecht said. Total deal value has increased, although the number of deals nationwide and in North America remain below what occurred in 2021 when pandemic “right-sizing” activity spiked M&A activity.

“Buyers are looking for quality instead of just more deals,” he said.

He reported no consensus among M&A experts about what will happen with U.S. interest rates. Rates could rise in an inflationary environment, he said, but experts don’t anticipate large changes, meaning a “relatively stable” interest rate environment will sustain M&A activity.

Rupprecht said that smaller deals are accounting for the volume of M&A activity but larger deals are driving the value of transactions.

“While mega deals make the headlines, the middle-market deals are causing the volume increases,” he said.

Rupprecht also said that merger and acquisition activity is spread over multiple sectors of the economy, “and that’s a good sign. That makes recovery in the M&A market feel more durable,” he said. Industries such as information technology, he noted, account for a sixth of deal count but a quarter of deal value. The IT sector would include data centers and chip manufacturers, which rank among the fastest growing businesses in the nation.

Buyers across industries determine what to pay for their acquisitions based upon multiples of EBITDA, or earnings before interest, taxes, depreciation and amortization. Those multiples are lowest for small companies and highest for large acquisitions. He said that companies valued at under $100 million see average multiples of 6.1 times EBITDA. On the other end of the spectrum with valuations in the billions of dollars, multiples can be 12.6 or 14.7 times EBITDA. 

“We’re feeling solid about the back half of the year,” Rupprecht said, summarizing the M&A activity in three points:

• Capital has gotten cheaper.
• More investment money is available in the market.
• And those holding it are under pressure to use it.

Share on Facebook on LinkedIn