The U.S. economic recovery is underway with a 3.2% increase to GDP in the first quarter, according to new data from the Commerce Department. The increase, which was in line with economists' forecasts, marked the third straight quarter of growth following the worst recession the U.S. has faced since the Great Depression. The Federal Reserve repeated its vow last week to keep interest rates low, despite the stronger economy.

Data released Tuesday showed that home prices rose on an annual basis for the first time in more than three years in February. Consumer confidence is also on the rise, reaching an 18-month high in April. Retail sales and factory activity have improved, and hiring by U.S. employers grew in March at the fastest rate in three years. Inflation has been modest.

News that at Standard & Poor's downgraded the debt of Spain, Portugal and Greece last week took stocks sharply lower on Tuesday, but buyers later stepped back in to offer support. In turn, stocks have retraced most of the slide and currently sit near the 19-month high. News of the debt downgrades sent the dollar higher against the euro, so if you’re planning a trip to Paris this spring, you’re in luck.

On the Mend

Just one year ago, investors feared that the market might be on a track that resembled the bear market of 1929-1932, but since that time the market has been on a largely uninterrupted bull run. As illustrated by the chart below, the S&P 500 is up 75% from its low in March 2009. If that low continues to hold (as most economists expect), it means that the bear market which began in October of 2007 was just 17 months in duration, comparing favorably to the 30-month slide that followed the bursting of the dot-com bubble a decade ago.

 Source: Doug Short, PhD., www.dshort.com
From the Mirus Blog www.FindCapital.org: New England’s economy grew in the first quarter of 2010, outpacing the mid-west and southeast. Massachusetts and New Hampshire led the Northeast, among just four states nationally with growth in excess of 1.0% for the period. The Federal Reserve Bank of Philadelphia produces a monthly coincident index for each of the 50 states. (Learn more by visiting our Blog: http://findcapital.org/2010/04/28/ma-and-nh-lead-in-economic-growth/)   States highlighted in green below experienced economic growth in Q1.
 
 

   

Source: Federal Reserve Bank of Philadelphia
 
The State Coincident Index combines four state-level indicators to summarize current economic conditions in a single statistic which indicates growth (or decline) over a three-month period: (1) nonfarm payroll employment; (2) average hours worked in manufacturing; (3) the unemployment rate; and, (4) wage and salary disbursements deflated by the consumer price index. The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.
With the S&P 500 now near a 19-month high, valuations have improved substantially for publicly traded companies.   The services sector (see components below), now valued at 7.7x EBITDA*, has outperformed most other sectors with flat revenues from 2008 to 2009 and earnings growth of nearly 2% during that period. Healthcare services firms are currently the most highly valued, with EV/EBITDA multiples of 8.2x. Technology companies saw some decline in revenues in 2009 but managed a modest improvement to overall earnings, and currently trade at 10.5x EBITDA. Internet and Media companies, currently valued at 15.1x EBITDA, outperformed other technology components.
 
* Valuations are in terms of overall Enterprise Value (EV) for the companies in the index, not market capitalization.
 
 
Source:  CapitalIQ (closing values on April 29, 2010)
Middle-market mergers and acquisitions have picked up considerably since the fall of 2009. Completed transactions for the six months ended April 30, 2010 were up 26.4% over the prior six-month period. Technology deal flow led the way with an uptick of 34.3%, followed by distributors, up 33.7%. 
 
 
 
 
Source: CapitalIQ (Middle-Market M&A transactions with a transaction value of $10 to $250 million for the twelve months ended April 29, 2010)
 
One technology company in particular is on a spending spree. Last fall, Eric Schmidt, the CEO of Google said the company planned to buy one small company a month. They’ve certainly tried. After courting video compression business On2 Technologies and recommendation site Yelp Inc., Google has gone on to acquire social search startup Aardvark, document software developer DocVerse Inc., the flight information search business ITA Software, and online video platform Episodic. The Company has also announced their planned acquisition of AdMob Inc., and participated in a venture financing for the Boston-based mobile game developer SCVNGR, Inc.
Founded in 1987, Mirus Capital Advisors is a middle-market investment bank that specializes in merger advisory, capital-raising services, fairness opinions and valuations to entrepreneurs, corporations and professional investors. By combining a proven process, industry and transactional expertise, and personalized service, Mirus has completed hundreds of transactions for both public and private companies. 
 
Our affiliate Mirus Securities, Inc. is a registered broker-dealer and FINRA/SIPC member.
 
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For any questions about the Middle Market Monitor or Mirus Capital Advisors, please contact Miurs Capital Advisors at 781-418-5900 or visit www.merger.com. You can also contact our senior bankers directly at:
 
Sources: CapitalIQ and Mirus analysis. Copyright 2010, Mirus Capital Advisors, Inc. All rights reserved. Mirus Capital Advisors does not assume any liability for errors or omissions.
 
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