2004 Recap
After reaching record levels in 2000, M&A activity declined precipitously in 2001 and 2002, and then experienced a modest rebound in 2003, which continued and accelerated in 2004. Strategic buyers finally returned to the M&A market after spending several years on the sidelines. The appetite of private equity firms, with over $100 billion in available capital, remained strong. All of this demand translated into rising valuations, which resulted in an influx of sellers to the markets.

In the U.S., the number of mergers and acquisitions announcements rose 14.8% to 9,964 in 2004 and spending on deals shot up 43.7% to U.S.$777 billion, according to the latest statistics from FactSet Mergerstat, a leading provider of global mergers and acquisitions information. It was the best overall performance for U.S. M&A since the record-breaking market of 2000. Private company transactions also provided a major lift to M&A deal flow. The number of private company announcements in the U.S. climbed 24.4% to 5,109 in 2004.

Much of the boon in deal flow for large deals and private company transactions was the result of dealmakers having greater access to financing. Throughout 2004, leverage multiples steadily increased, as bankers were more willing to provide acquisition financing than they had been during much of the 2001-2003 period. Also aiding dealmakers in their pursuit of transactions was the fact that the lending environment became extremely competitive due to an enormous amount of liquidity in the capital markets at all levels, including greater access to high yield debt financing.

Competition may also be responsible for boosting the activity of another key segment of the M&A market: strategic buyers. Prior to 2004, many strategic buyers were too pre-occupied with internal matters to focus on acquisitions. As the competitive pressures in their respective industries have grown and shareholders have turned their attention to growth and capturing market share, strategic buyers have refocused their attention on the M&A market. That fact is evident from a recent FactSet Mergerstat study, in which the number of M&A transactions announced by S&P 500 companies in 2004 rose 2.8% to 913 and the total dollars spent by these companies on their transactions increased 31% to U.S.$355.8 billion. It was the first time in four years that year-over-year acquisition activity grew for this key strategic buyer group.

And finally, it was a record year for private equity investors according to Fact Flashwire, a weekly trade publication that tracks M&A activities nationwide. They spent an unprecedented $91.1 billion on 1,387 U.S.-based targets in 2004.