During the twelve months ended December 31, 2009, cash held by the members of the S&P 500 index increased by more than 30% to $960 billion. Deloitte consulting reports that as conditions have stabilized and signs of a recovery become more widespread, shareholders have begun to pressure executives to evaluate the best uses of this cash. With renewed growth being a top priority coming out of the recession, Deloitte expects acquisitions to be a popular means of deploying capital. While a select number of these acquisitions will be large corporate takeovers, a substantial amount of activity is expected to flow down to the middle market. While I haven’t heard of a similar number for cash reserves for smaller companies, you can expect the same activity in the lower middle market (companies with sales between $1 million and $50 million).
Combine this with the large mass of capital amassed by the private equity firms, loosening of credit and the expected bulge of business on the market by retiring baby boomers, it promises to be a busy couple of years coming up. Perhaps very busy.
I can feel the activity increasing already. We have more engagements and an increasing number of calls and meetings with business owners.
There are many factors that drive this activity, but one of the best indicators seems to be when I have my family summer vacation planned. Since this indicator seems to overpower the rest, August should be a very busy month for M&A activity.