M&A Quarterly Review — 4th Quarter 2021

Middle market M&A reached new highs in Q3 2021

  • Deal volume increased 20% to 14,228 during the trailing twelve months ended September
  • Total deal value swelled 56% to $394 billion during the same period
  • Valuation multiples expanded to 7.6x TTM adjusted EBITDA, beating the levels seen in the pre-pandemic period

Debt and equity continue to fuel the market

  • Total leveraged loan issuance in the U.S. continued to increase to $740.9 billion during the first eleven months of 2021
  • 15 non-financial companies are sitting on nearly 40% of the $2.77 trillion cash held by all companies in the S&P 500
  • Globally, 25 PE firms hold 22.3% of the record $2.286 trillion in total global dry powder

Economic recovery stumbled on Delta concerns, but outlook remains positive

  • GDP growth slowed to 2.1% in Q3 2021 due to concerns about the COVID Delta variant and supply chain constraints
  • The Leading Economic Index® (LEI) improved for the eighth consecutive month in October to 118.3
  • Consumer confidence remained positive despite inflationary pressures, increasing to 113.8

2021 momentum is likely to spill into 2022

  • After the COVID-induced pause, pent up demand is powering acquisitions and divestitures
  • The pandemic is causing family and founder owned businesses to rethink their priorities and plans
  • The potential increase in the capital gains tax rate motivated sellers to pull forward their exit timeframe

Risks to our view

  • Rising inflation leads to materially higher interest rates and lower valuations
  • The Omicron variant of COVID-19 leads to lower economic activity and business confidence
  • Supply chain issues, which appear to be easing, linger on or worsen