Industrial Distribution M&A volume in Q4 2020 lagged equivalent 2019 levels both domestically and globally. 2020 US Industrial Distribution M&A activity decreased 23.6% to 266 transactions. 2020 global activity also fell short of 2019 levels, decreasing 21.2% to 612 transactions. Although low compared to 2019 levels, global and domestic M&A volumes reflect an increasingly optimistic market environment. A 23.6% Q4 2020 decline in Industrial Distribution M&A volume is markedly improved over YTD Q3 2020’s decline of 38.4%, and global volumes realized a similar trend. Rebounding M&A volumes, particularly evident in Q4 2020, reflect the optimism acquirers and investors have around economic recovery and pandemic resolution. Public equity markets reflect this optimism, with public equity valuations continuing to surpass Q4 2019 levels. S&P 500 valuation multiples increased from 14.1x to 17.1x in Q4 2019 and Q4 2020, respectively.
Manufacturing sector indicators continued to recover in Q4 2020 after remaining in contractionary territory through the beginning of the year. The Institute for Supply Management (“ISM”) New Orders Index increased to 67.9 in December 2020, after starting the first half of the year in contractionary territory. The ISM Purchasing Managers’ Index increased to 60.7, up from 55.4 in September 2020. The ISM Production Index increased to 64.8 in December 2020 after contractionary levels from March to May 2020. The Chicago Fed Midwest Economy Index, which measures non-farm economic indicators, increased to 1.3 in December 2020, indicating above-average growth for the Midwest economy.
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