By all indications, 2016 is expected to follow on the heels of 2015. Analogous M&A market drivers remain in place that supported a record breaking year in 2015: interest rates remain low (for the immediate future), strong corporate balance sheets provide room for acquisitions, a surplus in “dry powder” as private equity raises money faster than it can deploy it, shifting customer preferences and technological disruptions are creating issues for companies and are thus turning to inorganic growth to stay competitive.
In 2015, deal values rose 55.1% to $2.3 trillion while transaction volume declined 3.2%. While several “megadeals” drove this uptick, companies across all classes (lower middle market to $1BB+) experienced attractive multiples and competitive buyer interest. Buyout funds raised $275 billion in 2015, exceeding record levels experienced in 2006-2007. Attractive exit multiples and ROI’s for LP’s lead analysts to believe 2016 will be another robust year for fundraising.
Sellers can expect a high level of strategic buyer interest as healthy valuation multiples make it difficult for PE firms to compete. Corporations will also look to protect market share and gain access to new technologies, supplier relationships, and intellectual capital through acquisition.
We anticipate a healthy volume of add-on acquisitions by private equity firms as strategic competition puts upward pressure on valuation multiples. In 2015 add-on acquisitions reached all-time highs with nearly 800 deals valued at $220 billion. While most discussions about the future of the economy stand to be conjecture, interest rates will eventually inch higher, thus adversely affecting company valuations for sellers.
For now, exiting business owners should continue to enjoy this great seller’s market.