Domestic industrial distribution M&A activity in Q1 2020 lagged behind Q1 2019 levels, decreasing 32.5% to 79 total transactions for the quarter. Global industrial distribution M&A activity also fell short of Q1 2019 levels, decreasing 22.4% to 177 transactions. Global and domestic M&A volumes reflect a market environment that has slowed as the world reacts to the novel coronavirus. Both strategic and private equity acquirers await greater clarity on the long-term impact of the pandemic. Mirroring the low M&A start to the year, public equity valuations decreased to early-2016 levels. S&P 500 valuation multiples decreased from 12.5x EV/EBITDA in Q1 2019 to 11.7X in Q1 2020, while the mean industrial distribution EV/EBITDA decreased to 8.6x in Q1 2020 from 10.9x in Q1 2019.
Manufacturing sector indicators ended in contractionary territory, after some strength in the beginning of the year. The Institute for Supply Management (“ISM”) New Orders Index declined to 42.2 in March 2020, indicating contraction after starting the year in expansionary territory. The ISM Purchasing Managers’ Index decreased to 49.1, down from 50.1 in February 2020 (lowest reading since January 2016). The ISM Production Index decreased to 47.7 in March 2020 after expansionary levels in both January and February 2020. The Chicago Fed Midwest Economy Index, which measures non-farm economic indicators, decreased to -1.0 in March 2020, indicating below-average growth for the Midwest economy. The Consumer Price Index, a measure of inflation, decreased to 258.0 in March 2020 (0.2% decline over December 2019).
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