In this article, we highlight the following 10 industries: i) Aerospace & Defense, ii) Aircraft Parts, Maintenance, Repair and Overhaul, iii) Chemicals, iv) Construction & Engineering, v) Energy: Oil & Gas, vi) Food, vii) Healthcare, viii) Industrial Manufacturing, ix) Technology, x) Transportation, Logistics, Distribution.

The second quarter saw some improvement in deal volume; however, deal value declined compared with the first quarter. Over the past year, liquidity has remained strong and debt-to-equity levels have declined as larger companies have increased their cash balances. This is expected to be a driver of M&A activity, given the restrictions on organic growth and need to yield a return on equity. Despite the decrease in average deal size, EBITDA multiples increased in the second quarter.

Construction & Engineering

The fragile recovery of the engineering and construction sector resulted in a significant reduction in deal activity in the second quarter of 2012. The continuation of the European debt crisis, slow-down in the growth of the Chinese economy, and overall uncertainty about the growth prospects of the construction sector took a toll on M&A deal volumes and values.

U.S. construction spending fell 0.6 percent in August, the largest drop since July last year, to an annual rate of $837 billion. July’s spending was revised lower to 0.4 percent.

The housing market is showing signs of improvement. Spending on residential projects rose 0.9 percent in August, a reflection of the improving housing market and an increase in home renovations.

Government spending for infrastructure projects is also expected to start increasing in 2013, driven by the need to replace aging and deficient infrastructure, which should also increase demand for construction equipment and services for the coming years.

Energy: Oil & Gas

Recent M&A activity in oil and gas has been driven by shale transactions, but in the second quarter, midstream deals increased, led by gathering and processing targets.

Private equity activity has had an increasing focus on the energy industry, to capitalize on the expected growth in US energy. They are also looking to invest in the natural gas business at the bottom of the cycle. As an example, Blackstone Group recently raised over $2.5 billion for its first energy-focused private equity fund. Blackstone Energy Partners, has already committed more than $965 million in six investments and in February, Blackstone agreed a total investment of $2 billion in Cheniere Energy Partners LP.

The U.S. oil and gas sector has attracted some of the largest leveraged buyouts of the last 12 months, including the $7.2 billion acquisition of Samson Investment Co in Tulsa, by a consortium led by KKR & Co LP, as well as El Paso’s $7.15 billion divestment of assets to an Apollo Global Management LLC — led group.

The Food Institute recorded a 20% increase in M&A activity in the food and beverage industry in 2011, compared to 2010, but still approximately half the levels of 2007, when 473 deals were completed. There was also increased private equity investment in the sector.

In 2012, General Mills has been working on its restructuring plan, including cutting workforce, but also expanding international acquisitions due to sluggish US sales, having already completed the acquisition of Parampara in India, and Yoki in Brazil. In other news, Kraft split into two companies on October 1, changing its name to Mondelez International, then spinning off Kraft Foods Group, with both talking about acquisition strategies after the split.

Healthcare deal volume has been low in 2012, compared to 2011, despite increasing activity behind the scenes. In a recent report, PwC stated that trend will likely reverse, with a strong close to the year, in part due to the greater certainty from the Supreme Courts ruling on the Affordable Care Act. PwC also noted that continued convergence among payers and providers has given rise to increased consolidation with companies looking to build scale.

Most deal activity is expected to be driven by midsized companies. Private equity will continue to play an important role in healthcare M&A activity across all sectors.

Industrial Manufacturing

The number of industrial manufacturing deals decreased in the second quarter and year-over-year as the global economic slowdown stunted growth in the manufacturing sector, however this still remained the most active sector for M&A.

U.S. factory activity shrank for the third straight month in August as new orders, production and employment all fell. The Institute for Supply Managements August 2012 number was down to 49.6, a further decline from 49.8 in July and the lowest reading in three years (a reading below 50 indicates contraction.)

Economic activity in the manufacturing sector expanded in September following three consecutive months of slight contraction, and the overall economy grew for the 40th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report. The Institute for Supply Managements September 2012 number increased from 49.6 in August to 51.5. This reading indicates a growing sector.

U.S. factories have been a key source of jobs and growth since the recession ended in June 2009, but the sector has shown signs of weakness in recent months. Despite this, we expect an uptick in industrial manufacturing deal activity through the remainder of 2012.

According to PwCs report, second quarter technology transaction volume decreased by 15 percent on a quarter-over-quarter basis from the first quarter of 2012, from 65 deals in Q1 to 55 deals in Q2. However, the value increased by 8% to $31.8 billion. On a year-over-year basis, Q2 2012 showed a 35 percent decrease in activity from the same period in 2011. Deal value, however, was again up slightly.

PwC interpreted this trend as an increase in larger acquisition integrations in the last twelve months, which should lead to non-core spin-offs in the coming quarters, so upcoming technology M&A may have more activity, but lower value.

Transportation, Logistics, Distribution

The second quarter was strong for M&A. The pace of deal volume accelerated from both the first quarter and 2011, while deal value is on pace to reach the level of 2011.

Overall M&A activity and outlook

In the third quarter, M&A activity was down 3.4% from the second quarter of 2012. Furthermore, M&A values in the first 9 months of 2012 were 23% lower than the same period in 2011, confounding most experts predictions. Energy, Mining and Utilities led deal values so far in 2012. Other active sectors have included manufacturing, business to business industries, IT and healthcare, but across the board M&A has been surprisingly weak in 2012.

According to PwC, middle market deals accounted for approximately 98 percent of total deal activity in the first half of 2012. The competition among buyers for middle market companies has been driving up business valuations, placing even greater importance on robust diligence of revenue growth and operational improvement opportunities and development of the post-deal integration strategy earlier in deal preparation.

ClearRidge Review and Outlook

ClearRidge deal opportunities continue to gain very good visibility and responses from industry strategic companies and private equity groups.

Bolstering our standard business practice at ClearRidge, our team is conducting unprecedented pre-emptive due diligence to remove obstacles to closing a transaction and ensuring that only the most likely buyers with the capital and commitment to close a transaction make it to the closing table.

Buyers are requiring more thorough and professionally prepared information earlier in their review of the business opportunity. Companies that are better prepared prior to launching the sale process have been rewarded with higher valuations, smoother and less intrusive due diligence, and a quicker cycle to closing the transaction.

The business economic signals that we watch at ClearRidge indicate 2013-2014 that business revenue performance is unlikely to improve dramatically as compared to 2012, with some risk of a downturn. Earnings performance improvement will be derived from continued productivity and efficiency initiatives, technology utilization, and synergy gains as a result of an acquisition strategy.

Sources: This report has been compiled from government data, independent analysis, IBISWorld research, as well as PricewaterhouseCoopers, Deloitte M&A reports and other sources cited in the text.

About ClearRidge Capital, LLC

Headquartered in Tulsa, Oklahoma, ClearRidge provides Corporate Finance, Merger & Acquisition and Restructuring services for midsized companies. We have completed M&A transactions, provided restructuring advice and secured new and replacement capital for midsized companies across the US and Canada. Our advisory services are provided with a focus to maximize value for shareholders and ensure that the process is confidential, timely and professional. We have worked with many of the leading private equity groups, banks, law firms, audit and accounting firms across the US and Canada.

Recent Completed Transactions (link to ClearRidge website):