M&A 2012: Interesting Chart -- Confidential Pricing Hides Robust M&A Middle Market

Middle market M&A deals with confidential valuations increased 20% year-over-year in 2011 and in the second half of the year hit record levels, exceeding 70% of announced transactions.

Key takeaways for 2012 deals.

Reading the 2011 M&A Market: Up, Down or Sideways? For lower middle market M&A deals (<$250MM) involving companies in the US or Canada, depending on how you slice it, yes.

Through mid-December there were roughly 2900 middle market deals with announced values totaling $115B – or an average deal size of $40MM. Both of these 2011 market parameters are roughly equal to 2010 – suggesting the market is flat from 2010-2011.

However there have also been approximately 6700 M&A deals with confidential pricing in 2011, versus 5600 in 2010 – a 20% increase. While there are some $250MM+ deals in this dataset, it is safe to assume that most are smaller deals.

It is interesting to note that this trend continued in 2H-2011, despite stock market volatility, and US and Euro-zone economic issues. Since June 2011, there have been roughly 3200 deals with confidential pricing, versus 2600 in 2H-2010 (a 24% increase).

Buyers and sellers in M&A transactions are not obligated to disclose deal values, except in certain public company circumstances, and there are many reasons both sides prefer privacy. For acquirers, valuations give powerful business-related signals to competitors and other 3rd parties with no direct interest in the transaction. For sellers, M&A liquidity events are major milestones, but privacy with respect to personal financial matters is clearly preferred.

Key takeaways here are: 1) Market and economic issues impact deal announcements with price disclosure requirements more than those that are kept confidential; and 2) over 70% of deals are not disclosing pricing and valuation terms. These are meaningful, requiring “old school” research and relationships to understand what 2011 deals and markets will actually mean for a 2012 transaction.

Data source: Dealogic LLC. M&A deals involving North American companies with undisclosed or <$250MM transaction values. Final ownership stake >50%. Excludes real estate & finance sector.