Industrial distribution M&A activity for Q3 2019 exceeded equivalent 2018 levels both domestically and globally. Year-to-date (“YTD”) US volumes continued to outperform 2018, increasing 8.1% to 268 transactions. YTD global volumes followed suit, increasing 4.5% to 598 transactions. M&A volumes remain at record levels, with the current run-rate implying 797 global and 357 domestic transactions by year-end. Despite strong M&A activity, public equity valuations remain at depressed levels. S&P 500 valuation multiples were in-line with the prior year at a mean 13.0x EV/EBITDA (Q3 2018 mean of 13.1x), while the mean industrial distribution EV/EBITDA declined to 11.3x compared to 13.0x in Q3 2018. The ongoing trade war fueled these depressed metrics, as a conclusion is yet to be reached despite multiple meetings between the US and China.
Macroeconomic indicators in Q3 2019 shifted into contractionary territory as overall market conditions steadily declined. The Institute for Supply Management (“ISM”) New Orders Index declined to 47.3 (indicating economic contraction) in September 2019 after 42 consecutive months of increasing. The ISM Purchasing Managers’ Index closed at 47.8, down from 51.7 in June 2019. The Chicago Fed Midwest Economy Index, which measures non-farm economic indicators, did not change at -0.3 in September 2019, indicating below-average growth for the Midwest economy. The ISM Production Index finished September 2019 at 47.3, decreasing from 54.1 in June 2019. The Consumer Price Index, a measure of inflation, rose to 256.3 in September 2019 (0.5% growth over Q2 2019).
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