September 2020 Midwest M&A Highlights

Sluggish merger and acquisition (M&A) activity carried over into September, as just over 500 transactions were completed in the US during the month.

Despite an apparent leveling off of deals (more September deals will certainly be reported as there is a lag in reporting), preliminary data from PitchBook suggests that overall transaction value climbed roughly 60% month over month.

​In the Midwest, 14 transactions were preliminarily reported, a slight increase from August’s 11 deals. Deals in the information technology space were favored, accounting for six of the 14 completed. 

The late-summer slowdown in M&A activity may be caused by a few factors:

• PPP Loans - Many businesses in the lower middle market received Paycheck Protection Program (PPP) money. As we’ve covered in another post, terms within the PPP loan documents limited the ability of recipients to completely sell or raise money for their business. However, several recent developments appear to be eliminating many of these roadblocks soon.

 

• Economy - Data suggests that deal makers are reconsidering previously agreed-upon M&A deals as the economic downturn continues, particularly in certain sectors affected by consumer behavior and spending shifts. According to Dealogic, US companies cancelled 82 deals worth $111 billion so far this year.

 

• Stimulus - Deal activity retreated in August after a clear recovery in June and July. The initial unemployment benefits under CARES Act expired at the end of July and have continued at a lower level under the President’s executive order, Congress has not finalized whether or not there will be an extension of or replacement for the CARES Act, which has raised the level of uncertainty in the market.

 
With the improving prospects for PPP loans no longer preventing transactions, we expect deal volumes to pick up over October and November. This will further improve when/if the political limbo of whether or not there will be additional stimulus is resolved. The economic recovery, which we previously expected to be very uneven, will continue to vary significantly by industry and geography.

Despite the slowing in deal-making, deals are still getting closed. Investors are actively seeking quality investments and have significant cash reserves to invest.

Companies that are thriving in this tough environment are receiving heavy interest. As covered in our Second Quarter M&A Report, fewer deals in general are being completed, but the focus on higher quality deals is generally resulting in near record-high valuation multiples.