The M&A activity in the fluid handling industry increased 39% sequentially in Q2 versus Q1 2024 measured by the number of transactions (25 transactions in Q2 versus18 in Q1). On a year-to-date (YTD) basis, the activity level is down YTD through Q2 2024 versus the same period in 2023 by 30% (with 43 transactions YTD Q2 2024 versus 61 transactions for the same period in 2023).
The activity fell off starting in Q2 of 2023 through Q1 2024 before regaining some strength in Q2 2024, as shown in the quarterly activity table below.
The number of fluid handling industry transactions YTD where valuation information has been disclosed is quite limited. However, more general information regarding valuations available for Q1 2024 provides mixed signals with some data sources indicating Q1 2024 valuations were essentially unchanged while others indicate a step down in valuations in the quarter.
Our sense has been, and continues to be, there is interest by both corporate and private buyers to seek quality acquisitions. Given the very soft activity level in Q1, it is not likely we will see a return to the high annual activity level of the last three years. However, barring a major negative macro event, we would expect the Q2 level of activity to continue through the balance of the year with a possible uptick if there is favorable action on interest rates in the fall.
Regarding valuations, we continue to sense the competitive environment will keep valuations from a substantial decline and possibly get support if the expectation for interest rate reductions starting in the fall materializes.
Activity Level
Year | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 Q2 |
Transactions | 71 | 69 | 102 | 105 | 106 | 43 |
Period | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | Q1 2024 | Q2 2024 |
Transactions | 29 | 30 | 21 | 23 | 18 | 25 |
Activity level in Q2 2024 was more widespread versus Q1 with 16 companies making acquisitions in the quarter versus 11 in the prior quarter. There were six companies making multiple acquisitions in Q2. The most active companies are shown in Image 3 below.
Corporate buyers have been more active versus private buyers so far in 2024, making 80% of the acquisitions YTD versus 70% for all of 2023.
Most Active YTD Q2 2024
Company | Transactions | Company | Transactions |
| Atlas Copco | 11 | AxFlow | 2 |
| Ingersoll Rand | 6 | Indutrade | 2 |
| DXP Enterprises | 3 | Interpump | 2 |
Valuations
Year | # of Transactions | EV/Revenue | # of Transactions | EV/EBITDA |
2024* | 5 | 0.8x1 | 4 | 6.8x1 |
2023 | 6 | 1.9x | 6 | 11.7x |
2022 | 12 | 1.4x | 5 | 10.0x |
2021 | 13 | 1.7x | 4 | 10.4x |
2020 | 10 | 0.9x | 3 | 10.8x |
Notes:
EBITDA - earnings before interest, taxes, depreciation and amortization
EV - enterprise value is the combined amounts of market capitalization, minority interests, preferred stock and net debt Revenue - amount recorded as net sales for the period
1 The median revenue and EBITDA are $25.4 million and $2.7 million respectively YTD Q2 2024 versus $540 million and $156.4 million for 2023. This is a dramatic change in deal size mix that may be an anomaly or an indication that acquirers are currently more comfortable making smaller deals.
Our reading is that valuations for quality acquisitions that have a strong strategic rationale are holding up with acquirer's caution, possibly causing a shift, for now, toward smaller deals.
Outlook
1. Deal activity – expect the current deal activity level to maintain with possible uptick, barring a major negative macro factor.
2. Valuations – holding up due to competitive environment for quality deals unless there is a disappointment on interest rates.
3. Trends – distribution and/or service targets again accounted for 60% of the YTD Q2 2024 transactions as companies look to get closer to the end user with:
- Products and services that address end user needs/wants for reliability and efficiency
- Distribution and service capabilities, as well as relationships, that create a competitive advantage