Since the beginning of 2011, the proportion of deals completed by Strategic buyers versus Financial buyers has stayed fairly constant as demonstrated by the chart below.

One statistic that has changed, however, is the total transaction value per deal, which started to decrease after reaching a high in Q2 2011. The record low for the last 17 months was in Q1 2012.

If one analyzes average transaction value by type of buyer, for Financial buyers, it has decreased from $91.76MM to $61.82MM over the last 17 months. For Strategic buyers, average transaction value has decreased by a much smaller amount, from $55.16MM to $51.32MM in the same time period. As you can see from the chart below, this statistic is trending upward over the last few months for Strategic buyers, but remaining flat for Financial buyers.

Financial buyers are paying less per transaction now versus 17 months ago. We believe that this trend is the result of credit markets that remain unstable, causing leveraged buyouts to be more expensive and complex. Typically, Financial buyers pay less because they have to generate a return on invested capital, without the benefit of synergies. The chart above also demonstrates that the average value that Strategic buyers are paying per transaction is not decreasing because of companies’ desires to either make offensive or defensive acquisitions and because of their ability to derive synergies.

When Strategic buyers make acquisitions, they are often able to recognize both revenue and cost synergies. Revenue synergies occur when the buyer can sell its products through the target’s sales force, and vice versa. Cost synergies occur when the buyer can reduce costs of the combined companies by eliminating redundant costs.

As a result of the trends mentioned above, we expect the average price per deal will increase over time. Strategic buyers will continue to use their large cash balances, which are reported to total US$850 billion for US companies, to make opportunistic and synergistic acquisitions, and Financial buyers will need to pay more for deals, or they will risk losing an increasing number of deals to Strategic buyers.

In the first quarter of 2012, 248 middle market transactions were closed worldwide in the Information Technology (“IT”) industry. Transactions valued at less than $100 million represented approximately 80% of these deals.

One reason for a large percentage of the deals occurring in the lower middle-market is industry consolidation, and the need for companies to stay competitive. In February, Juniper Networks purchased Mykonos Software for $80 million to enhance its security offerings and stay competitive with companies such as Palo Alto Networks.

Another reason is because larger companies are eager to expand into related markets, and they are doing this by acquiring small, well-established companies. In January, AT&T purchased SuperClick for approximately $15 million to grow its presence in the hotel Wifi market. As this space becomes increasingly popular, AT&T looked to acquire a company with robust technology and many well-known clients. Superclick’s clients include Four Seasons Hotels, Jumeirah, and Marriott Hotels International, among many others.

These trends are prevalent not only in IT, but also across most other industries. Furthermore, with the continued acceleration of the U.S. GDP at the end of 2011, along with the optimistic economic data, we expect the number of middle market transactions to continue to increase in 2012.

M&A in 2012 is off to an incredible start. 2,853 transactions have been announced so far this year, compared to just 599 in Q1 of 2011. The total transaction value for all deals announced year-to-date is $333 billion, whereas it only was $95 billion in Q1 of 2011. These statistics show that companies are more confident in the future of the global economy, and are beginning to use cash they accumulated over the past few years to expand through mergers and acquisitions.

Year-over-year, the Financials, Industrials, and Consumer Discretionary industries saw the largest increases in transactions on an absolute basis, whereas the Telecommunication Services, Industrials, and Materials industries saw the biggest gains on a percentage basis. As you can see from the chart below, all industries have experienced tremendous growth in the number of transactions this year versus the first quarter of 2011.

Looking at the trends from a geographical standpoint, Asia / Pacific saw the largest increases with the United States / Canada and Europe regions not far behind. The Africa / Middle East and Latin American / Caribbean regions saw the biggest gains on a percentage basis. To summarize, the year-over-year changes for all geographies are quite impressive, with each region seeing incredible growth in the number of transactions compared to one year ago.

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We expect the number of transactions, and associated transaction values, to continue to increase throughout the rest of 2012 as an increasing number of companies look to stay ahead of their competition and industry consolidations continue.

Over the past three years, the emergence of the South American economy has not been a surprise to many. While Brazil may be the first country that comes to mind when one mentions a strong South American economy, other countries such as Argentina, Uruguay, and Colombia will start to make more headlines over the next two to three years. After all, their respective GDP growth rates on a year-over-year basis are the three highest in South America at 9.30%, 8.47%, and 7.7%.

From an M&A standpoint, in these countries combined, there were 42 more deals announced or closed in 2011 than there were in 2010. The associated transaction values jumped by $3.6 billion. In terms of the increase in number of transactions and the aggregate increase in transaction value, both increased by 22% from 2010 to 2011. Furthermore, almost 60% of all deals occurred in one of the four following sectors: Energy, Financials, Materials, and Industrials.

With strong macroeconomic factors, we expect M&A in these and other South American countries to continue the upward trend in 2012. Additionally, as more and more companies worldwide begin to see the tremendous growth opportunities that these countries present, the number of transactions should continue to increase every year.

Happy New Year!

Last year M&A activity increased in leaps and bounds in most areas around the world. From Latin America, to the Asia Pacific, to North America, new deals were announced with more regularity and at higher valuations this past year than any time since 2007.

M&A truly returned in 2011; in many regions, we saw transaction levels reaching all-time highs. As the economy continues to gain momentum, we expect heightened levels of M&A activity.

One major trend in the Emerging Markets was that transaction volumes approached similar levels as Developed Markets, and numerous international transactions confirmed this. Versailles Group contributed to this trend by assisting in the divestiture of Brazil’s Brapenta Eletronica Limitada to UK-based Loma Systems, a subsidiary of US-based Illinois Tool Works (NYSE: ITW). This transaction was unique by its nature and structure, and is a major indicator of the way future Emerging Market deals will be done. For more information, see the press release.

In the United States, the major M&A trend was consolidation, which has been ongoing since early 2010. Mid-sized companies are being acquired by larger competitors seeking to acquire and capitalize on their efficiencies and market shares. Versailles Group witnessed this firsthand in numerous transactions, including advising its client Kenneth Crosby, on its sale to DXP Enterprises (NASDAQ: DXPE). This transaction was a perfect example of a large, public distribution company synergistically acquiring a competitor for its market share, location, and industry-leading efficiencies. For the specifics of that transaction, see the press release .

An overall 2011 trend was that large corporations executed deals faster than ever. Versailles Group was retained by SuperMedia LLC (NASDAQ: SPMD) to divest Switchboard.com. From start to finish, this transaction was completed in 60 days. This demonstrates the fact that large corporations are more flexible and able to close transactions faster than ever in an increasingly competitive M&A environment. Our expertise allowed us to quickly link our client with multiple buyers and the deal was closed rapidly and at an excellent value.