The M&A Watch is a quarterly publication offering analysis of the marketplace and climate for middle market mergers, acquisitions and strategic transactions. The goal of this publication is to arm business owners and other parties with insight to help prepare for such transactions in order to maximize transaction outcomes. If you are interested in reading previous reports in addition to downloading this current issue, login to the M&A Watch page.

It’s no surprise that M&A activity in the lower middle market hit a multi-year low in the first half of 2020 due to the health crisis and its significant impact on the economy. But a closer look at the data and overall market sentiment shows that while M&A activity was down across the board, valuations were not. For many, deal value has remained intact and, overall, deal activity began to rebound in Q2. 

Toward the tail-end of Q2, we saw corporate buyers begin to return to the M&A world. Operators gained peace-of-mind and a more optimistic outlook due to the unprecedented amount of liquidity pumped into the economy by the Fed and access to PPP funds and other programs. Not wanting to miss the long-awaited shift to a buyer-favorable market, those that were well capitalized began to engage in M&A initiatives again. 

In regards to future predictions, Pursant sees M&A activity will grow in COVID-resilient sectors, such as janitorial, and at pre-COVID multiples. Though deals will be getting done, they will require more rigorous diligence and longer timelines.

Here are a few more top takeaways from Q2 2020:

• Lower middle market M&A activity down 28% YTD through June compared with 2019
• Financial buyers led the charge in M&A activity—more so than corporate buyers
• M&A borrowing slowed and rates rose
• Deals that closed showed continued multiple strength

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