The mergers-and-acquisitions deals seem to just keep on coming.

However, it’s possible, after three or four record years and amid speculation about economic uncertainty and rising interest rates, the prospect of escalating trade wars and already frothy valuations, that 2018 will not be a record year for transactions.

“If I were the owner of a quality company, I would be seriously considering a sale,” said Bruce Engler, a veteran mergers-and-acquisitions lawyer and head of the commercial practice at Faegre Baker Daniels. “Like other markets, the M&A market runs in cycles. I can see conditions getting worse for sellers from here, but I don’t see them getting better.”

The long, slow rebound in deals from the dearth of 2009, still in the clutches of the Great Recession, was slow and steady, and posted record years since 2015 in terms of total value or number of transactions. Or both.

On the surface, things looked pretty rosy for the first six months of this year.

More than $2.5 trillion in mergers were announced during the first half, as what the New York Times described as fears of Silicon Valley’s growing ambitions helped drive a record run of deal-making.

Four of the 10 biggest deals were struck in part to fend off competition from the largest technology companies.

The value of acquisitions announced during the first six months of the year increased 61 percent from the same period in 2017, according to data compiled by Thomson Reuters.

That seemed to put mergers in 2018 on pace to top $5 trillion, which would be yet another record.

However, the deal market also started to soften in the second quarter, particularly in June and within the so-called “middle market.”

That accounts for a majority of transactions, ranging from roughly $50 million to $1 billion in value.

The number of transactions in the second quarter slid to 2,008 nationally, from more than 2,500 in 2017. Deals involving a Minnesota company slid to 31, down from 40 in 2017 and 43 in 2016, according to Dealogic, which tracks the market.

The question is whether the June swoon is a pause or a trend.

“In the U.S. middle market, the deal total in June declined 31.4 percent and dollar value fell 15 percent,” Robert W. Baird & Co., the Milwaukee-based securities firm, said in its most recent monthly report.

The national deal count in the second quarter was the lowest since the fourth quarter of 2009, although dollar volumes were up nearly 75 percent to $1 trillion, thanks largely to multibillion-dollar deals, according to Baird.

Meanwhile, Piper Jaffray, the investment banker, reported in July that its investment banking advisory services dropped nearly 18 percent in the first half of the year, although it predicted a better second half.

We will see.

Engler thinks the deal market may be waning, for sure in the number of transactions late in this cycle.

“Both private-equity and strategic buyers are flush with cash and actively seeking quality companies to buy,” Engler added. “But, having said that, there is a very important negative factor that is holding the market back. Not enough quality companies for sale. And the shortage of quality companies for sale means too much money chasing too few deals — resulting in high valuations.”

And valuations appear to be approaching the frothy levels of pre-Great Recession years.

That said, the deal market appears to be cooling not freezing, as transactions are announced every week.

For example, in the last month:

• Capella Education closed on its $1.2 billion sale to Strayer Education, including Capella laying off up to 10 percent of its workforce, to form Virginia-based “Strategic Education,” a bigger player in the consolidating online-education business.

• Alumacraft, the St. Peter, Minn.-based maker of fishing and other boats, was purchased by BRP, the Canadian maker of Ski-Doo snowmobiles and Evinrude motors in a deal estimated to approach $100 million.

Alumacraft and Evinrude will be part of a newly formed, Wisconsin-based marine division. And BRP indicated that it will soon have plans about growing the brands jointly. Alumacraft had been owned for several years by a private-equity firm.

• Employee-owned Padilla, the largest independent public-relations firm remaining in the state, was acquired by Avenir Global, a Montreal-based management company of public relations firms in a deal estimated at more than $50 million.

CEO Andy Kocemba of Calhoun Cos., the business brokerage that works with companies of a few hundred thousand in revenue to $15 million, the smallest portion of the market, said he’s not seeing a local slowdown in transactions.

The smallest businesses also were the last ones to recover from the Great Recession. And their price-to-operating earnings valuations lag those of larger companies.

“Small business owners still have confidence in the economy,” Kocemba said of recent national surveys by Met Life and the U.S. Chamber of Commerce, as well as his own street anecdotes.

“Income statements look good. And some small business owners are just fine with holding on to their companies.”


Neal St. Anthony has been a Star Tribune business columnist and reporter since 1984. He can be contacted at