What the M&A Deal Data Tells Us

In late March 2020, Axial launched the Coronavirus Lower Middle Market Deal Activity Dashboard to track real-time financing and M&A activity in the lower middle market. Now that six months have passed, here are three important trends they have identified in the data:

1. New deals going to market are on the rise 

In March and April, we all watched governments, cities, schools, businesses, and families hunker down and focus (rightfully so) on public health and everyone’s safety. It is estimated that 76 percent of middle market companies were forced to alter their operations or shut down completely due to state lockdowns. Naturally, this affected deal activity, with some experts saying M&A activity dropped off by 85 percent.

But the dashboard shows that summer awakened fresh optimism. New deals brought to market on the platform hit an annual low in May before picking up steam in June, July, and August. Total U.S. M&A volume is still down approximately 39 percent in August (823 transactions) compared to the same period in 2019 (1,353 transactions).

2. Letters of intent executed pep up after drop in June

Alongside the increase in net new deals at the top of the funnel, Axial’s data shows that there was also a consistent uptick in the number of LOIs executed at the bottom of the deal funnel over the summer. June, July, and August show more activity than March and April of this year.

3. Investor interest in new deals remains flat

The monthly number of signed NDAs (often used as a proxy for investor interest in new deals) started to recover in June and July after a dramatic drop-off at the beginning of the pandemic. However, Axial points out that executed NDAs trended downwards in August, inconsistent with the increase in new deals shared that same month. This could be explained by many different factors (e.g. continued uncertainty around the upcoming election, pandemic, etc.).

The findings from Axial are encouraging and hopefully a sign that the M&A market is on a path to recovery. In our recent post, Private Equity Activity Expected in the Remainder of 2020, we mentioned how the abundance of private equity money currently sitting on the sidelines combined with active buyers waiting for prices to drop, has resulted in competition for the best opportunities. This competition is helping to drive valuations up. We’re still seeing this trend play out and believe it’s partly responsible for the increase in executed letters of intent that Axial is reporting.

To view Axial’s real-time dashboard for yourself, go to https://www.axial.net/deal-activity-dashboards/.

If you are considering buying or selling a business, contact us for a confidential discussion of possibilities appropriate to your specific situation.