Contact: Brenon Daly
When we looked closer at the dramatic falloff in M&A last month – what we have called the ‘June swoon’ – we saw that the decline not only cut spending by nearly two-thirds, it also slashed the number of richly priced deals. For the 50 largest and most significant transactions of the just-completed second quarter, which we believe have an outsized impact on setting the tone in the overall M&A market, we calculated the median price-to-trailing-sales multiple at 2.25. (Incidentally, that was up slightly from 2.15 in the first quarter.)
For the first two months of Q2, there was a steady flow of significant deals valued at least twice as rich as the ‘market’ multiple of 2.25. Those transactions included Microsoft paying 10 times trailing sales for Skype, LoopNet’s sale to CoStar Group for $860m (9.5x trailing sales), Symantec’s move to bolster its e-discovery offering with its $410m purchase of Clearwell Systems (7x trailing sales), and EMC’s reach for NetWitness, which we estimate valued the network forensic player at almost 6x trailing sales.
But by June, the relatively high-multiple deals were getting harder to find. In fact, last month saw the fewest number of above-median-valuation transactions in the second quarter with just 11 deals, compared to 16 in May and 23 in April. That recent weakness doesn’t particularly bode well for the rest of the year.
Significant transactions* in 2011
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Source: The 451 M&A KnowledgeBase *The 50 largest transactions, by equity value, including publicly disclosed financial terms as well as our own official estimates