M&A activity has been pretty strong throughout 2016. But October was a monster month with $489 billion in global deal making — the highest level seen since the $471 billion tallied in April 2007. Major deals announced in October included AT&T/Time Warner, GE/Baker Hughes, British American Tobacco/Reynolds American, Qualcomm/NXP Semiconductors, and CenturyLink/Level 3 Communications.
But big companies aren’t the only enterprises embracing an acquisitive strategy. M&A activity among small businesses is also growing, according to D&B First Research’s newly updated valuation multiples for US industries. The valuation multiples data provided to First Research by Pratt’s Stats offer benchmarks for middle-market business acquisitions from all over the US in a variety of industries.
Amid weak sales growth, many companies are turning to acquisitions as a means to future growth. With large stockpiles of cash and years of buying back stock, companies are looking to make deals. Additionally, after sitting on the sidelines hoping for an easing of antitrust policy, companies are less optimistic about a favorable shift in the regulatory environment and are moving ahead with more aggressive M&A strategies. In speaking to The Wall Street Journal in late October 2016, Bank of America global M&A chairman Steven Baronoff indicated antitrust policy would likely remain strict regardless of the November election’s outcome. The massive value of deals cut in October would seem to bear this out. However, it remains to be seen if Trump’s win will have an effect on future M&A activity.
In a survey of executives at large companies (more than 80% with annual revenue over $500 million) released in October by Ernst & Young, 57% of executives said their companies aim to seek acquisitions in the next 12 months. Nearly half said they already had more than five deals in the works. The survey also revealed that while executives are optimistic about the global economy and corporate earnings, the path to increased value is through mergers, acquisitions, and alliances.
Amid an improving US economy, including rising employment and incomes, small companies that cater to consumers may be looking to expand through acquisitions. First Research’s valuation multiples data indicates that the restaurant business was a hot spot for middle-market acquisition transactions in 2016. Deals were strong in every corner of the industry, including casual dining, fast food, specialty eateries, and bars and nightclubs. Consumer services also saw healthy activity, including automotive repair, hair care services, laundry and dry cleaning, and child care.
A robust housing market is likely a driver of strong acquisitions growth in a number of industries, including specialty contractors and residential real estate brokerages and management. The business services sector also saw solid levels of deal making in industries such as janitorial and carpet cleaning services, landscaping, commercial printing, and express delivery services.
Acquisition activity among small and midsize businesses may continue to gain steam in 2017 amid the improving outlook among small businesses. In an October survey of small business owners conducted by PNC Financial Services, more than 70% are optimistic about the US economy, which represents the highest level of fall optimism since 2005. More than half of respondents said they expect sales to increase in the next six months, and nearly half believe profits will rise during the same period. However, few small and midsize businesses plan to hire or make increases in capital spending over the next six months. About 20% of business owners said they planned to add employees, as most opt instead to do more work with fewer workers. Only 20% of companies reported plans to increase capital investments.
Customers of D&B First Research can find the updated acquisition multiples data in the Financial Information section of individual industry profiles. First Research also provides insight into business challenges, trends, and opportunities in 500-plus industries. Industry profiles are also available on First Research’s sister product, D&B Hoover’s.
James Bryant is an industry editor for Dun & Bradstreet. Based in Austin, Texas, he writes about issues affecting the global manufacturing sector. He’s been the company’s specialist on the auto industry for 15 years.