Widespread optimism for future of M&A market

Widespread optimism for future of M&A market

Craig Miller is chief executive officer of ACG-Chicago, an organization of professionals within the mergers and acquisitions market. Associate Editor Sherri Dauskurdas recently spoke with him about what 2010 may bring for transactions in the Chicago area.

Q: What’s the overall feeling in the M&A market right now?
A: I think we certainly had a rough year last year, statistics were down with the economy and everybody was working their way through that, but everybody is looking at 2010 as a step forward, and a chance to start from where we are and build a good momentum. I don’t think anyone sees us skyrocketing back to the high levels of 2007 or 2008, but with the surveys we have done, almost 90 percent of our members are saying yes, it will be a better year.

Q: What is contributing to that optimism?
A: Financing isn’t flushing back in but it is becoming available at reasonable limits. It is not perhaps just back to historic norms yet, but we don’t see it getting tighter over the next year.

About half the people see us working our way, rolling up our sleeves and getting some mezzanine, getting a little more equity in and helping the companies that need some capital. Maybe it will loosen another quarter point or so. And we are looking at getting some more capital into opportunities that are out there. We should have a chance to do that, a chance which may not have existed last year when the credit market seized up.

Clearly, our professionals see some positive indicators earlier than others, because we begin the advisory portion of the engagement long before a company comes to market. We work with the companies we see sales picking up or cost containment efforts.

They get a picture especially of the privately held firms, long before the public sees it. They are seeing more stability, a little more liquidity and expected growth in some of those core markets—the manufacturing, financial services, health care, energy markets—key markets not only for our region, but for the whole country. That’s because most companies now, as they get to the middle market size, are not a locally focused firm thanks to access to distribution and communication.

Q: Does the M&A market typically grow as an economy falters, or does it follow the same track as the economy?
A: We saw the M&A market follow the economy. The number of deals was down for most markets. Some of the oncoming markets, like clean technology, actually had the same or a couple more transactions done, but the total invested dollars were down because valuations were down.

As people have a better view of what is coming and there is stability in the market and the economy steps forward, then lending becomes more feasible and the ability to structure a deal with senior debt and mezzanine debt and equity becomes more realistic as well.

Q: Do the dollar amounts of the transactions paint an accurate picture of the market’s activity, when so many companies have been devalued?
A: While the activity in specific sectors may have still been there, it is the valuation of the deals that really gives you the picture of what the business community and the people see as the long term return on their investments.

It’s like a snapshot. When you look at the value of a company today, that’s the future expected value of all the growth, development and eventual capital returned to the investors.

What it was three years ago, when everyone had a more euphoric feeling about the long-term economy versus where it is today ... neither may be accurate. The best we can do is look at today’s values and say “that’s the future as we know it, today.”

Q: Did certain industries in this region maintain their levels better than others?
A: I think, overall we saw some decline last year in the number in most markets. Clean technology and health care markets were an exception. We clearly saw a number of deals in the financial markets, but many of those were distressed. So it was a blend of required transactions and opportunistic transactions.

We saw more activity from strategic buyers, the companies that had more capital, looking at the market and taking the opportunity to grow. Usually it was either expansion into a geographic market that you can now take advantage of, or gaining a little more market share.

Q: When is a merger a viable alternative and what must a small- or mid-sized business consider?
A: The merger is really looking at who is bringing what value aspects to the table. Someone may bring technology and someone may bring distribution channels or workplace expertise, sales expertise ... there are so many variables that combine to create a greater value.

I think you take a good hard look, get some advisors around to help you keep running the business and take an outside view of the combination of these two entities and see where the whole is greater than the independent parts.

If you are a small company being acquired by a larger one, you are going to have a cultural change. You need to understand if that will be better managed by a merger, or if an acquisition of the company and a single vision drives the new company forward.

It’s not really a financial formula that says this is when it works and this is when it doesn’t. It’s more analysis and interaction of the leaders of the firms and the drivers of value in those companies.

Q: Were there any transactions you saw as indicating direction in a particular industry, or the overall economy?
A: One deal from September highlights both the health care industry, which is a major sector in the region and succession planning. Des Plaines-based Aptilon, a medical data services company, was acquired for $32 million.

Another active sector is the food industry. The Nov. 9 announcement of $24 million invested in Chef Solutions/Orval Kent, based in Wheeling, allowed for better positioning of that firm for growth and support of corporate growth initiatives.

Of course there is the media story of our 2008 Lifetime Award winner Jim Tyree purchasing the Sun Times with support form his Mesirow crew.

Q: Are there any legislative triggers out there you are watching?
A: We have a wide range of views of the legislative actions out there, and I won’t take a lobbyist view. Some of the stimulus money is out there but a good portion hasn’t even been spent yet. A lot has been awarded but only about a quarter has actually been spent and reached the market.

For the most part, we see just a more stable confidence in the economy overall. The volatility in legislation and in markets creates both uncertainty and opportunity. As long as our professionals stay on top of the markets, then they can take advantage of that, and help the businesses maximize whatever legislation or funding comes through.

Posted on Wednesday, February 03, 2010 (Archive on Wednesday, February 10, 2010)
Posted by jstoltz Contributed by jstoltz

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