M&A Summary:

Q1-2019 continued to face many of the same broad headwinds as previous quarters. Brexit and USA–China trade uncertainty persisted, as well as growth slowdowns in most major developed countries. This reality has led the US Federal Reserve and the Bank of Canada to adopt a more dovish outlook on the economy, waiting to increase rates further until some uncertainty has been removed from the markets. However, even though optimism has tempered, there is no need for panic.

These conditions have had an effect on the M&A market, with transaction volume dropping from 513 in Q4-2018 to 322 in Q1-2019. For many larger deals, potential buyers are taking a "wait and see" approach to understand how these macro issues resolve before continuing on the recent record-breaking pace. We believe that although larger deals may be hampered by these macro economic factors, a potential slowdown will not have a proportionate effect on the volume of mid-market transactions. This sentiment paired with the fact that there is still a large amount of equity and debt capital to be deployed means mid-market deal volume could remain robust going forward.

Something that may result from decreased economic growth is a reduction in the transaction multiples being paid for private business. While ultimately equity dry powder will need to be deployed or returned to investors, we expect that average transaction multiples may decline from current high levels due to decrease in forecast target company performance. It appears as if investors are listening to the current mantra of Howard Marks and are deciding to "move forward, but with caution." To help mitigate this current and future risk, the financial and tax diligence completed for deals of all different sizes has increased. Vendors should be prepared for this increased burden, and should consider professional advice in advance of going to market to expedite the deal process and reduce closing risk.