MergerMogul, July 8, 2008:
In the first quarter, many M&A professionals were hopeful that things would improve in the second or third quarter. Then the second quarter came, and some forecasted recovery was going to happen in the third or fourth quarters. But now that the third quarter is officially upon us, most people I talk to expect the second half will bring more of the same.
For large deals that heavily rely on debt, that means a scant number of transactions. Banks just don’t have the appetite for risk right now. And while the middle market is definitely faring better, the dropoff from a year ago is substantial. The latest statistics I saw showed just 226 private equity deals in 2008 through June 13, 2008, compared with 669 during the same time period the year before.
The good news is, even if things remain the same for the second half, market conditions are far from dire. For example, cross border M&A activity is only slightly lower for the first half of 2008 than it was in 2007. And certain industries, such as financial, healthcare and energy remain hot spots for investment. (However, when I say hot spots, that’s relative—those sectors are holding their own, but probably still won't reach 2007 transaction levels.
In the short term, things really can’t get much better as we enter the dog days of summer. But perhaps where the middle market is today is the new reality, something that everyone just needs to get used to. No sense of waiting around for the hay days to return. Whatever the extent of the next recovery, in the meantime it’s best to focus on getting quality deals done at decent multiples, a task that is clearly easier said than done. Let me know what you think about the second half.Danielle Fugazy firstname.lastname@example.org