M&A Quarterly Review — 3rd Quarter 2021

M&A activity hit new highs in Q2 2021

  • Deal volume increased sharply in Q2 2021 driven by liquidity, low borrowing costs and seller interest
  • Total middle market deal value continued to climb, making Q2 2021 a record quarter
  • Valuation multiples rebounded in Q2 2021, returning to levels seen before the pandemic

The availability of debt and equity continue to underpin a strong market

  • U.S. leveraged loan issuance during the first seven months of 2021 was about 27% higher than all of 2020
  • S&P 500 cash swelled to $1.9 trillion from roughly $1.5 trillion in early 2020, before the pandemic
  • PE dry powder will remain high as total AUM is expected to reach $9.1 trillion by the end of 2025

Economic recovery continues, bolstered by improvements in the job market

  • GDP growth increased in Q2 2021, solidifying expectations of a sustained economic recovery
  • The Leading Economic Index® (LEI) improved for the fifth consecutive month in July
  • Consumer confidence edged up in July 2021 driven by improvements in business conditions and the job market

2021 is on track to become a record year for M&A activity

  • After a pandemic-induced pause, long-term trends and pent up demand are powering acquisitions and divestitures
  • The pandemic is causing many family and founder owned businesses to rethink their priorities and plans
  • The potential increase in the capital gains tax rate is motivating some sellers to pull forward their exit timeframe

Risks to our view

  • Labor shortages and supply chain issues continue to delay the post-pandemic recovery for some companies
  • Faster than expected inflation leads to higher interest rates and lower deal activity
  • The Delta variant of COVID-19 leads to lower economic activity and business confidence