By now you have heard about the riches generated by the robust market for mergers and acquisitions across the United States. Over the course of 2006, the number of reported transactions rose 7 percent over 2005, and the value of those transactions rose nearly 20 percent, with more deals and higher values. The comparison to 2002 (the least active year in recent history) is even more impressive, with the number of transactions increasing by nearly 60 percent, and the transaction value more than tripling.

There are a variety of attributes driving the high levels of activity. These too have been widely reported but warrant repeating. They include:

• High advance rates — lending institutions of all types are still aggressive in their lending and advance rates, providing unsecured debt funding for transactions of nearly all types.
• Low cost of money — interest rates are still at reasonable levels, allowing for acquisitions to achieve positive cash flow, even with high levels of borrowed money funding the transactions.
• Many buyers in the market — financial buyers and strategic buyers are both very actively seeking acquisitions, making many transactions very competitive, thereby driving up pricing.
• More sellers entering market — as more and more company owners become aware of the robust market conditions, a lot of owners seek to monetize some or all of their net worth that is held inside of the company.
• Private equity firms raising and investing capital — private equity firms continue to raise record amounts of capital for use in funding more and more transactions. In 2006, nearly $200 billion in new capital was raised by private equity groups.
• Raised Awareness — many headline deals are raising the general awareness and creating excitement for M&A.
• Cash Flow Cushion — new types of financing is creating the cash flow cushion that helps certain deals become possible where before they were not (e.g., "toggle notes").

These attributes, and others, are certainly national trends and in some cases international trends. With the free flow of information available today, banks and other types of lenders from all over the country, as well as from overseas, are funding all types of transactions, large and small. Given the level of freely and readily available information, ranging from the unsolicited letters that seemingly every company owner gets in the mail touting a potential buyer for their company to the press reports of the latest supersized transaction, why isn't every single company in America putting itself up for sale? Why are some regions of the country more active in M&A than others? Which regions are the most active and how is the Midwest faring in this market?

The casual observer might believe that the Midwest realizes less M&A activity than other parts of the country, such as either coast or the Southeast or Southwest. They might also observe that the region has less M&A because it is simply losing its manufacturing companies to other low-cost locations overseas or through consolidation into companies operating in other higher growth parts of the country. However, PMCF's recent research reveals a different trend and one that is a little surprising and quite positive for the region and three of the states studied in depth: Illinois, Michigan, and Ohio (the three Midwestern states where Plante & Moran and PMCF has offices).

This analysis studies the level of M&A activity in each of the three states compared to the nation and other regions, including where the acquiring company is located (in the state or outside of the state) and attempts to identify other regional factors that could be driving the activity. These other factors, while largely anecdotal, may provide some insights as to why the Midwest, and particularly these three states, remains a strong contributor in the nation's overall economy and certainly a strong contributor in the latest M&A uptick.

Download the complete Market Update — Regional Activity 2006.