February transaction volume in the U.S. significantly lagged behind February 2017 activity and the five-year average for the period. Both January and February have recorded significant drops in deal volume, a trend that mirrors the overall slump in deal volume that occurred in 2017 due to elevated valuations and a lack of quality assets. This trend suggests that 2018 volumes will continue to follow the same downward trajectory, but several trends offer reasons for optimism.
M&A volume remains strong on a historical basis, and average deal value trends continue to show that buyers are willing to pay full value for healthy assets. In addition — and contrary to overall deal volume trends — global PE buyout volume increased in 2017 while North American buyout values increased by 10 percent in the period.
This comes as no surprise to us as ballooning buyout fund sizes led to record-setting global dry powder of $1.7 trillion by the end of 2017. Based on S&P 500 non-financial companies alone, strategic buyers have more than $1.7 trillion in cash on their balance sheets. As a result, both strategics and private equity groups are taking advantage of red-hot debt markets that are offering to fund deals with hefty levels of low-cost leverage.
Local strategic buyers were busy putting capital to work during February and paying up for quality assets. Uniontown-based Securitas Electronic Security, a subsidiary of Swedish security services provider Securitas AB, signed a definitive agreement to acquire Kratos Defense & Security Solutions’ public safety and security division for $69 million, or 15 times EBITDA.
Mayfield-based Park Place Technologies completed the acquisition of Axentel Technologies’ businesses in Singapore, Malaysia, Hong Kong and the Philippines. Park Place has also signed an agreement to complete the acquisition of the Axentel’s Thailand business in the second quarter of 2018. Axentel is a Singapore-based provider of IT lifecycle solutions with service offerings throughout Southeast Asia. The acquisition represents Park Place‘s seventh acquisition since the company’s acquisition by PE firm GTCR in December 2015.
Al Melchiorre is president and founder and Matt Sweet is an associate with MelCap Partners LLC. MelCap Partners is a middle-market investment banking advisory firm. For more information, email Al at [email protected]