6 reasons merger and acquisition activity is heating up

A new client just closed on an acquisition last Tuesday. I am currently working with three other clients to acquire companies via strategic M&A transactions. Another client is looking to sell one of its divisions.

I’m not entirely sure what is driving the sudden increase in M&A activity, but I would suggest that it is a combination of the following six trends:

  1. The economy is performing better and owners who had deferred the consideration of a sale during the downturn are now willing to entertain offers. Some have also now attained the financial results they need to get a sales price that will allow them to retire comfortably.
  2. Interest rates are still low (for now) and buyers who are anticipating higher borrowing costs would rather close a deal while money is cheap.
  3. Banks are looking to make new loans and covenants, and they are becoming less stringent about their requirements. (Although, this is a somewhat scary trend if you look at some of the multiples of EBITDA that are being paid.)
  4. Buyers are willing to pay more, as demonstrated by the increase in the average EBITDA multiple year-over-year. As a result, the gap between seller and buyer expectations has shrunk and more deals are closing.
  5. Many businesses have created excess working capital over the past few years by paying down debt and retaining earnings. These buyers are now looking for a better return on that equity.
  6. There are still plenty of private equity dollars on the sidelines and these buyers are anxious to deploy their capital.

This is a good time for buyers. The cost of borrowing remains low and you hopefully have a healthier balance sheet to support an acquisition.

If you are a seller, EBITDA multiples have increased so you should be able to get a higher price than a year ago. Plus, your business has hopefully improved in the interim, which will also increase the potential sale price of your business.

David Shaffer, Kreischer MillerDavid E. Shaffer is a director with Kreischer Miller and a specialist for the Center for Private Company Excellence. Contact him at Email


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