First quarter 2019 industrial distribution M&A volume significantly outperformed Q1 2018, increasing 36.3% in the US and 25.0% globally. This increase portends continued strong performance in M&A activity in 2019, as total deal volume is on track for a record year. Deal volumes coincide, in part, with equity markets’ recovery in Q1, improving trade deal expectations with China (though those expectations have recently been tempered), and the Federal Reserve’s announcement that interest rate hikes would not occur this year. Despite a strong Q1, public valuation multiples remain suppressed from 2018 highs, with the mean industrial distribution EV/EBITDA multiple decreasing from 13.0x in Q1 2018 to 10.9x in Q1 2019 (compared to the S&P 500, whose mean multiple dropped from 12.6x in Q1 2018 to 12.5x in Q1 2019).
Q1 2019 macroeconomic indicators continue to point towards expansion. The Institute for Supply Management (“ISM”) New Orders Index registered above 50 (indicating economic expansion) for the 39th consecutive month in March 2019, finishing at 57.4 vis-à-vis 51.1 in December 2018. The ISM Purchasing Managers’ Index closed at 55.3 in March 2019, an increase from 54.1 in December 2018. The Chicago Fed Midwest Economy Index, measuring non-farm economic indicators, increased to 0.2 in March 2019 from 0.1 in December 2018 (both values indicate expansion). The ISM Production Index finished March 2019 at 55.8, increasing from 54.3 in December 2018, and above the threshold indicating expansion. Q1 GDP grew at a faster than expected 3.2% annualized rate – contributing to analysts’ generally bullish view on the economy.
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