The first half of 2020 saw domestic industrial distribution M&A volume lag 2019 levels, decreasing 46.6% to 109 total transactions through Q2 2020. Global industrial distribution M&A activity also fell short of first half 2019 levels, decreasing 38.5% to 265 transactions. Global and domestic M&A volumes reflect a market environment that has continued to remain cautious as the uncertainty around COVID-19 persists, with many companies prioritizing operations and cash flow versus inorganic growth opportunities. In contrast to suppressed M&A performance year-to-date, public equity valuations have surpassed Q2 2019 levels. S&P 500 and industrial distribution valuation multiples increased from 12.9x and 10.5x EV/EBITDA, respectively, in Q2 2019 to 14.1x and 10.7x, respectively, in Q2 2020, – implying a disconnect between how investors and companies view the market and its recovery prospects.
Manufacturing sector indicators finished Q2 2020 strong after remaining in contractionary territory through the beginning of the quarter. The Institute for Supply Management (“ISM”) New Orders Index increased to 56.4 in June 2020, after starting the year in contractionary territory. The ISM Purchasing Managers’ Index increased to 52.6, up from a year-low of 41.5 in April 2020. The ISM Production Index increased to 57.3 in June 2020 after contractionary levels from March to May 2020. The Chicago Fed Midwest Economy Index, which measures non-farm economic indicators, increased to -3.6 in June 2020, indicating below-average growth for the Midwest economy. The Consumer Price Index, a measure of inflation, decreased to 257.2 in June 2020 (-0.3% decline over March 2020).
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