2015: The year of the mid-market

  • Dec 2014

Our Christmas trees are up and sparkling brightly, but Livingstone doesn’t wind-down for Christmas. This year Santa has been giving presents of successful deals, with two transactions closing just yesterday (announcements to follow). We have seen a transformational year in 2014, during which the M&A market has recovered strongly – values have risen 47% to US$3.34tr, with ‘megadeals’ and cross-border transactions transforming industry structures, and there are all the signs that acquirers are still hungry for more – particularly in the mid-market. While values are up nearly 50% across the market, volumes have only risen by 5%, and there is a clear expectation that 2015 will see volume catching up.

After a spate of mega-deals, recent survey of 735 US corporates, PE firms and banks found 50% of respondents expecting the average enterprise value (EV) of their 2015 acquisitions to be below US$250m. Teaming those statistics with the 82% of respondents planning at least one acquisition and 10% planning 11 or more, volumes and values look set to rise together in the mid-market.

Valuation_History

The appetite for large-ticket deals has supported peak valuations for European deals valued at over £500m – a post-crisis high of 18.0x EBIT, not far short of the 2007 peak of 19.1x, and significantly above the ten year average of 16.3x.  The European mid-market has remained good value by historical standards and in comparison to these elevated valuation levels.  In the sub-£500m space, the average EBIT multiple during 2014 was 12.8x, significantly below both the ten-year average of 13.5x and the peak of 15.0x.  This also represents a marginal fall in valuations from the 2013 level, 13.5x.  Whilst the repetition of 2014’s mega-deal volumes in 2015 may require a degree of good economic and monetary fortune, we see no obstacle to accelerating activity in the mid-market.

With an amazing 2014 behind us and every sign of 2015 being better, at Livingstone we look forward to our Christmas day rest – and we hope our (prospective) clients do too. May the loud bangs and fireworks ringing in the New Year bring us all health, happiness and a buoyant M&A market for 2015!


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