Q1 2016 Manufacturing & Distribution M&A Review and Outlook

February 2016

M&A activity in the Manufacturing & Distribution (M&D) sector in 2015 was slightly ahead of 2014 levels, making 2015 the second most active post-recession year on record. However, a deeper dive into the details revealed an alarming trend. The pace of closings began to slow in Q3 and then dropped off materially in December 2015 and January 2016, down 10.4 percent and 20.8 percent, respectively, from comparable year-earlier periods. While financial buyers steadily purchased M&D companies throughout the year, strategic buyers pulled back in the second half.

So what’s in store for 2016? With transaction pipelines filling and dealmakers still expressing optimism (see the most recent BDO PErspective Private Equity Study), we think the negative trend will soon reverse itself.

In terms of valuations, M&D companies sold for lower multiples on average in 2015 than 2014. No surprise here because the 2014 level, averaging 10.76x EBITDA, was unsustainable. The average in 2015 was still high at 9.74x and the mix of companies trading hands included a greater percentage of “average performers.”