As I.P.O.’s Stall, M.&A. Thrives

Languishing stock prices have put a brake on companies’ bids to tap public markets for new capital, while sparking a whirlwind of mergers and acquisitions from firms rushing to take advantage of cheap valuations, Reuters reported.
A number of United States companies have delayed their plans for an initial public offering after recent issues suffered in a weak stock market and forced a steep I.P.O. discount, bankers said, adding that more companies are engaging in a dual-track I.P.O. and M.&A. process.
The prospect of a continued fragile economy and choppy stock market conditions is making I.P.O.’s a less attractive way to raise capital, and more companies are considering a sale instead, bankers said.
“If the I.P.O. market is choppy, that gives a leg up to M&A and more of those (deals) may end up converting to M&A opportunities,” said Richard Truesdell, co-head of the global capital markets group at law firm Davis Polk & Wardwell.
Go to Article from Reuters »

For Big Firms, It’s Been Light in August

A wave of deals in what is typically a sleepy summer month is keeping bankers and analysts very busy. Yet the giants in M.&A. advisory work have seen their shares of the market slump in August, according to Thomson Reuters data.
Goldman Sachs, at the top of the league table for August with 27 global deals worth $97.7 billion, has had a decline of 6.9 percent in the dollar value of deals for the month, compared with the month a year ago, Thomson Reuters says. That came even amid a 28 percent increase in the number of deals on which Goldman advised.
Morgan Stanley — the second-leading adviser in August — has had a 17 percent drop-off from a year ago. JPMorgan Chase saw a decline of 2.2 percent, while Citigroup experienced a 16.9 percent fall .
Among the top banks, only Barclays Capital has enjoyed a pickup in deal activity, with a 3.3 percent gain from August 2009, enabling it to move up to seventh place in the league table for the month from 12th a year ago.
More but smaller deals, of course, mean more, but smaller fees for the investment banks. And the bulk of the advisory fees are typically not paid until the transaction closes, many months from now.
At that point, August will be just a fading summer memory.
Go to Related DealBook Column by Andrew Ross Sorkin »Go to Related Article from DealBook

Pension Funds Drawing Up List of Targets

Shareholders may soon get more power to shake up corporate boardrooms in the United States after the financial crisis exposed glaring weaknesses in how companies were managed, Reuters reports.
The Securities and Exchange Commission will meet at 10:00 a.m. eastern time on Wednesday to decide whether to adopt a rule that would give shareholders an easier way to nominate corporate board directors.
Giving shareholders the ability to place their director nominees on the corporate proxy statement has long been sought by big activist shareholders who want more say on how their companies are run.
Awaiting those new regulations, big activist pension funds are gearing up to compile a short-list of target companies in the next month, The Financial Times reported.
The move is part of a drive to shake up underperformers and will likely see the list come together after the September meeting of the Council of Institutional Investors –- a group whose pension funds have total assets of more than $3 trillion.
The proposal that would give shareholders the ability to seat their own nominees at the board of directors’ table is expected to be approved by the Securities and Exchange Commission on Wednesday.
Go to Article from Reuters via The New York Times »Go to Article from The Financial Times (Subscription Required) »Go to Article from The New York Post »

Are Mergers Back? Well, Sort Of

While this August has seen an unexpected resurgence in deals — huge deals — the banking business still hasn’t made up its mind where the trend is going, The New York Times’s Andrew Ross Sorkin writes in his latest DealBook column.
There are plenty of reasons to think that this boom can’t be sustained without a matching lift in consumer spending, but still, people are working through the night in Manhattan, their hands trembling as they tweak their final calculations over an 11th can of Red Bull.
What’s behind it? Companies chasing synergies, or locking in natural resources, or using up spare cash, Mr. Sorkin writes. But more importantly: how long can it last?
Read the column here.

The M&A Recession: A Recovery Is Still a Ways Away

By Stephen Grocer, WSJ DealJournal, August 4, 2010:
Let us know if we have asked this before, but is the M&A market in for a recovery in second half?
A rash of deals in the last two weeks of July pushed the month’s global announced deal volume to $224.6 billion–the highest monthly total this year. As such, the data sparked a bit of optimism about the prospects for deal making for the second half.
Overall, global M&A is up 13% this year, and deal making last month was higher in every region. After two years of falling deal volume, that is welcome news to M&A professionals.
Yet hopes for a M&A recovery have been dashed before. M&A activity jumped in the fourth quarter last year. But the recovery proved fragile. What was the first half’s biggest transaction–Prudential PLC’s purchase of AIA–fell apart. Europe’s debt crisis put a frost on deal making as worries that the global economic recovery would falter grew.
While concerns about Europe have retreated somewhat thanks to the stress tests on the Continent’s banks, handwringing about the strength of any economic recovery hasn’t. A host of economic data this week has suggested that the recovery is weaker than previously forecast. On top of that, a number of well-known investors are preparing for a period of falling prices.
Also, a closer look at the M&A data provides a less-than-overwhelming picture that a robust recovery is around the corner. For example, two of the biggest deals–BP’s sale of oil and gas fields to Apache for $7 billion and Caja Madrid’s acquisition of Bancaja–were driven more by the distress of the seller was by the confidence of the buyer. And U.S. M&A activity remains sluggish, down 5% from the same period last year.
As Deal Journal has said before, until companies gain more confidence in prospects for the global economic recovery, M&A is likely to remain muted. July didn’t dissuade deal watchers of this view.

New Report Asks: ‘Private Equity, Public Loss?’

NYT DealBook blog, Monday, July 26, 2010:
Just what’s going on with private equity? Activity in the industry is on the rise, so a fresh report on the industry is timely.
Enter Peter Morris’s “Private Equity, Public Loss?”, a report written for the Center for the Study of Financial Innovation, which highlights the basic misapprehensions that Mr. Morris believes many hold of the industry.
In the report, Mr. Morris says many investors are mislead to believe “interests are aligned,” a belief belied by a reality that is more complex.
The report’s chief points are these:
Realised returns are lower than advertised, even for top-quartile managers.
The quality is also lower: excluding high debt levels and general stock market performance, managerial skill accounts for only a fraction of the total return.
This calls into question fee structures, which may remove all the gains attributable toskill.
Conflicts of interest between investors and managers remain real and substantial.
Investors’ apparent failure to question the level and make-up of returns, and fees, raises questions about their collective status as “sophisticated investors”.
Perverse incentives in private equity may distort wider markets.
At the very least, private equity firms’ results should be measured more rigorouslyand made more transparent.
Go to Related Article from The Financial Times (Subscription Required) »
Go to C.S.F.I. Web site »

Private Equity Rides Again

NYT DealBook, Jul 07, 2010:
With an increase in secondary buyouts and a stock market more friendly toward initial public offerings, the private equity industry seems headed for something of a revival after grinding to near a stand-still during the financial crisis, The Deal Magazine writes.
As the New York Times noted in an article last month, among private equity players, competition for buyout targets has heated up and while prices are rising, from a historical standpoint, they remain attractive. Prices are well below the stratospheric levels of 2007 and 2008, according to Capital IQ.
Coupled with loosening up of credit, the industry is enjoying resuscitated dealmaking and profit taking, according to The Deal. Domestic leveraged buyout activity, which had dropped as low as $10.4 billion in the first half of 2009, passed $37 billion through June, the publication noted.
Yet, despite some pretty strong signs of recovery, private equity may not be headed to a 2007 redux, The Deal writes:
…the fact that the bidders managed to line up $10 billion in debt financing from various banks was a clear demonstration of the astonishing financial firepower that sponsors once again were able to marshal for the right deal. The debt harked back to the boom times, when $10 billion-plus LBOs proliferated. Could another era of supersized buyouts be in the offing?
The answer, all experts we spoke to agree, is no, because banks by and large remain constrained in what they can and will lend to buyouts. Nevertheless, the return of a semblance of normalcy to the business is heartening to many industry players.
Go to Article from The Deal »

Venture-Backed I.P.O.s Show Rebound as M&A Slips

From NYT DealBook, July 2, 2010:
Venture-backed initial public offerings are the highest since before the financial crisis, even as venture-backed M&A activity is slipping, according to a survey by Thomson Reuters and the National Venture Capital Association.
I.P.O.s have always been a key exit strategy for venture capital funds, a path that was essentially closed off by the moribund stock market in much of 2008 and early 2009, Reuters reported.
The number of venture-backed I.P.O.s in the second quarter is the highest it has been since the fourth quarter of 2007, according to the survey. There were 17 venture-backed I.P.O.s worth $1.3 billion in the second quarter, which was the third consecutive quarterly increase in volume and the second in dollar amount.
Electric carmaker Tesla Motors, which raised $226 million, was the largest deal of the quarter and rose more than 40 percent in its debut.
But there are still signs of uncertainty. Only five of the 17 I.P.O.s in the second quarter were trading at or above their I.P.O. prices at the close of markets on Wednesday and the deal flow is still far below historic highs. There were 86 venture- backed I.P.O.s worth $10.33 billion in the fourth quarter of 2007, the most recent peak in the venture-backed I.P.O. market.
Go to Article from Reuters »

The Double Dip M&A Recession

By Michael Corkery, WSJ DealJournal, June 30, 2010:
Coming on a turbulent week like this, the title of the Boston Consulting Group’s latest report seems a tad optimistic: “Accelerating out of the Great Recession: Seize Opportunities in M&A” reads the headline of the report released today.
In reality, deal activity appears to be doing anything but accelerating. If anything, it appears to be scraping along the bottom. U.S. announced deal volume is down 13% in the first six months of the year from the same period last year, according to Dealogic date released today. In Europe, deal volume is down 5%.
The numbers are even more depressing considering the year-over-year comparison stretches back to a period in 2009 when economy was reeling from the worst financial crisis since the Great Depression.
Still, BCG is optimistic that the conditions for a recovery are in place. Among them: Stable capital and debt markets (despite European problems), and an expanding global economy (though the Chinese juggernaut shows signs of slowing).
The folks at BCG aren’t alone in their optimism, though. The Organization for Economic Cooperation and Development declares in a report today that “International Investment Free Fall Comes to an End.”
OECD concludes that international M&A activity is on track to match last year’s totals:
International M&A investment in 2010 totals $300 billion, putting it on track to reach 2009 levels, ending a two year streak of steep declines in 2008 (down 21% from the previous year and 2009 (down 53%). This “could signal that the bottom on the cycle has been reached,’’ the OCED report concludes.
It was only a year ago that bankers and consultants were making similar optimistic pronouncements amid last summer’s M&A doldrums. But after a short uptick in the fourth quarter–thanks to big deals like Kraft Foods’s acquisition of Cadbury– the bulls turned out to be wrong.
There may be some debate whether the global economy is headed for a double dip recession. The picture seems much clearer in the M&A world. By most measures, it appears that M&A is mired in the second dip of a double dip hiatus.

M.&A. Activity Up Globally, but Regions Lag

NYT DealBook, June 30, 2010:
Mergermarket, an M.&A. intelligence service, reported a 2.9 percent increase to the number of deals going on globally in the first half, marking their total value at $828.9 billion, compared to $805.9 billion at the same time in 2009, The Financial Times said.
Greater increases in M.&A. activity were seen in the developing world, making a leap of 44 percent on last year’s level to $218.5 billion, The FT reported.
Mergermarket’s data offers a mixed picture of European deal-making: In the area of emerging markets, European buyers appeared in the highest volume, contributing to 61.2 percent of inbound M.&A.
However, the second quarter was noted by Mergermarket as the worst period for European M.&A. since the data firm’s records began 12 years ago, The FT said.
In the U.S., the firm’s findings were not much better, with M.&A. activity in the first two quarters dropping 18.8 percent across the region, putting the total worth of deals at $313.3 billion, the worst result since 2003, The newspaper reported.
Go to Article from The Financial Times (Subscription Requires) »

IPOs – Reason for Optimism?

From Piper Jaffray Private Equity Partners Market Update, Second Quarter 2010:
The IPO market in 2010 is off to a pretty good start. Year-to-date, there have been 53 IPOs, raising a total of $8.4 billion. This compares to 11 IPOs for $2.2 billion for the same period last year.
Early in the year, you could sense the optimism within the private equity community that the IPO window would reopen in 2010. While January and February were a little slow, March, April and May each produced a minimum of 11 IPOs and $1.3 billion raised. So far, June is slightly behind that pace (seven IPOs pricing through June 25) due to the market turmoil caused by the European debt crisis and perhaps recent post-IPO price performance. The class of 2010 IPOs is down an average of 3.5 percent versus a virtually flat year-to-date return for the S&P 500. Twenty-one of the 53 IPOs so far in 2010 are down more than 10 percent from the offer price and only 22 have traded up (as of June 25).
Regardless, the IPO backlog of companies in registration continues to grow, a sign that bankers and sponsors expect a robust IPO market in the coming months. There are currently 127 IPOs in registration, up from a low of 33 in August 2009. Most of them look viable. Less than 30 percent of the backlog is growing stale (more than four months old).
We have learned the following from recent discussions with institutional buyers of IPOs:
There is a strong demand for growth stories, which should bode well for VCs.
There appears to be less interest for LBO-backed IPOs. While institutional investors are still willing to participate in LBO-backed IPOs, they have become very price-sensitive. During the 2006–2007 boom of LBO-backed IPOs, the buyers were more apt to accept the valuation being pitched by the bankers. Today, investors are crunching the numbers themselves and telling the bankers where the deal needs to price. This is evidenced by nearly 50 percent of IPOs in 2010 pricing below their filing range, the highest percentage in years.
With few exceptions, the bar remains high for an IPO. Growth, profitability and predictability are the ingredients investors require. Median revenue for 2010 IPOs remains over $100 million while the median EBITDA is $24 million.
We anticipate the IPO market to remain choppy as investors continue to digest news of the global economy and the price performance of recent IPOs. An uptick in either category may add the necessary confidence to both issuers and investors to create a more steady flow of IPOs in the second half of the year.
Read entire article with charts at: http://www.piperjaffray.com/private/pdf/MarketUpdate_Q2_2010.pdf

On Wall Street, So Much Cash, So Little Time

By JULIE CRESWELL, New York Times, June 23, 2010:

Private equity firms, where corporate takeovers are planned and plotted, today sit atop an estimated $500 billion. But the deal makers are desperate to find deals worth doing, and the clock is ticking.
The stores of money inside the private equity industry have ramifications far beyond the bid-’em-up crowd on Wall Street. Millions of Americans — investors, employees, retirees — have a stake in the game too.
Go to article: http://www.nytimes.com/2010/06/24/business/24private.html?th&emc=th

A Rise in M.&A. Activity Is Seen in the Near Future

NYT DealBook, June 23,2010:
Deal-making has been subdued in the first half of the year, partly because of the recent turbulence in the stock market. But mergers and acquisitions are likely to pick up as the year progresses, Ernst & Young forecasts.
“We’re seeing a strong deal pipeline,” Rich Jeanneret, Americas vice chairman for Ernst & Young Transaction Advisory Services, said in the firm’s midyear mergers and acquisitions report. “As we look towards the second half of 2010, we expect to see well-capitalized corporations and private equity firms continuing to put their money to work in select growth markets.”
According to a recent Ernst & Young study of more than 800 senior executives around the world, 57 percent of businesses say they are likely or highly likely to acquire other companies in the next 12 months, almost double that of the 33 percent surveyed in November 2009. The study also found that 47 percent expected to make the move in the next six months, compared with 25 percent when surveyed eight months ago
The deal market will be defined by smaller, higher-quality deals fueled by low interest rates and corporate cash stockpiles, said Steve Krouskos, Americas markets leader for E.&Y.’s Transaction Advisory Services. In addition, Mr. Krouskos believes strong growth prospects in such markets as Brazil and China will lead to a pick-up in deal volume, despite concerns over instability in other developing markets.
The first half of the year started strong but began to fade as the sovereign debt crisis in Europe put some deals on hold. Global M.&A. deal value totaled $810.3 billion so far during the first half of 2010, similar to where it was during the comparable period last year at $814.6 billion. But much of the deals done in the first half of 2009 involved government activity in the banking system. This year, the deals took place across a range of industries, as private equity firms and other companies took advantage of the thawed credit markets and strong equity markets.
Looking towards the second half of 2010, Ernst & Young believes M.&A. activity should continue to grow, as well-capitalized firms seek to expand through mergers and acquisitions and from the strengthening of the credit markets (assuming the economy stabilizes).
Fortune 1,000 companies have a combined $1.8 trillion in cash, a huge stockpile that can be used for acquisitions. Ernst & Young expects companies to seek smaller deals, but “higher quality” transactions, as well-capitalized companies hunt for acquisitions that complement their strengths.
– Cyrus Sanati

Google and Twitter Go to Bat for Theflyonthewall

Google and Twitter have asked an appeals court to overturn a lower court’s decision to bar Theflyonthewall.com from issuing immediate news on analyst research from several Wall Street banks, Reuters reported, citing court documents.
Theflyonthewall.com posted headlines from research reports and press releases on its website, often before banks could share their recommendations with their clients.
In March, U.S. District Judge Denise Cote said Theflyonthewall.com engaged in “systematic misappropriation,” essentially getting a “free ride” from its quick publication of upgrades and downgrades that can move stocks higher and lower. The ruling was made in favor of Bank of America’s Merrill Lynch unit, Barclays and Morgan Stanley, which had earlier sought court intervention to ban Theflyonthewall from using their research reports.
However, in a filing with an appeals court late on Monday, Google and Twitter argued that in the age of Internet and instantaneous communication, banning of Theflyonthewall.com’s immediate news dissemination was “obsolete.” Google and Twitter argued that upholding the district court’s decision would give those who obtained the news first strong incentives to block others from obtaining the same information.
“News reporting always has been a complex ecosystem, where what is ‘news’ is often driven by certain influential news organizations, with others republishing or broadcasting those facts — all to the benefit of the public,” Reuters cited the companies as saying in the filing.
Go to Article from Reuters via The New York Times »

In Deal-Making, Flat Is the New Up

NYT DealBook, Monday, June 14, 2010:
Some bankers made rosy predictions for a big bounce-back in mergers and acquisitions this year. Yet deal volumes in the United States are recovering as if the recession just endured was run of the mill, Breakingviews says.
After two down years, the value of American corporate match-making is flat in 2010. That’s no boom — but if history is any guide, it’s also nothing for bankers to complain about, the publication says.
After declines of 41 percent in 2008 and 22 percent in 2009, the value of announced deals in the United States so far in 2010, at $322 billion, is just a fraction off last year’s pace. That pattern is in line with the last two recessions, according to Thomson Reuters data. The downturn of the early 1990s had three dry years, and the dot-com bust brought two.
So considering the depth of the latest recession, flat is the new up, Breakingviews argues. True, some on Wall Street had forecast a more robust rebound. Goldman Sachs predicted “a perfect storm for M.& A.” late last year, pointing to cash-stuffed corporate coffers — now at a record, according to the Federal Reserve — and benign capital markets. Greenhill & Company also predicted 2010 would be big for deal-makers.
But while last year’s fourth quarter showed a promising return of deal-making — like TPG’s buyout of IMS Health and Berkshire Hathaway’s acquisition of Burlington Northern Santa Fe — the momentum hasn’t continued, Breakingviews says.
Some may find that surprising. After all, while many companies achieved profit targets through cost-cutting during the economic downturn, the juice has probably been squeezed from that lemon. Acquiring competitors and eliminating overlap is another way to find cost reductions. For instance, while CenturyTel and Qwest have been cutting costs on their own, they now hope their merger will yield more than $600 million more in fresh savings.
The trouble is that even though the United States economy has stopped contracting, big risks still weigh on the animal spirits of executives, Breakingviews argues. Job growth is anemic and credit markets have had renewed volatility in the wake of Europe’s sovereign debt crisis. Such market turmoil may have played a role in scuttling Prudential’s bid for the American International Group’s Asian insurance business, and a $15 billion leveraged buyout of Fidelity National Information Services, the publication suggests.
Put it all together, and deal makers pining for more action should probably just consider themselves lucky to have any at all, Breakingviews says.
Go to Article from Breakingviews via The New York Times »

Private Equity’s $445 Billion Problem

NYT DealBook, Friday, June 11, 2010:
The private equity industry has $445 billion burning a hole in its pocket and it could soon turn into a problem, Investor’s Business Daily writes.
Buyout shops have raised — though are yet to deploy — that figure from institutional investors, according to the publication.
And if they can’t unload it in the near future, they may face a host a problems.
Investor’s Business Daily writes:
To realize the outsize profits investors expect, private equity firms would have to borrow two or three times that amount. But for the most part, credit spigots for such deals are still dry. At the same time, pinning down buyout targets is not that easy. Many potential sellers are balking at parting with corporate assets in the midst of a serious downturn.
Worst of all, the clock is ticking on that near-half-trillion war chest.
“Most funds legally have five or six years to invest that capital,” said Andrea Auerbach, managing director at Cambridge Associates, a consultant to institutional investors based in Boston. “It’s use it or lose it.”
If P.E. doesn’t start to spend that committed capital soon, investors may begin to pull out, the publication notes. At the same time deals that are done only to use the capital risk being ill thought through and potentially not very profitable.
Go to Article from Investor’s Business Daily »

Business Broker Chicago: The Importance of Reasonableness When Selling Your Business

Link to excellent article posted by Dave Kauppi:
http://businessbrokerchicago.blogspot.com/2010/06/importance-of-reasonableness-when.html

And You Thought M&A Was Slow Last Year…

By Stephen Grocer, WSJ Deal Journal, June 7, 2010:
M&A recovery? Deals just around the corner?
That may be what Wall Street wants you to believe.
But the numbers tell a different story. The volume of deal-making during 2010 has been weak. Very weak.
U.S. announced deal volume is down 14.7% from the same period last year, according to Dealogic. In Europe, it’s off 6%.
Those numbers are made only more stark given the year-over-year comparison stretches back to a period in 2009 when economy was still mired in the worse financial crisis since the Great Depression.
Perhaps more troubling is the dearth of large deals. So far only seven deals valued above $10 billion have been announced globally, the lowest total in the past five years. Seven transactions rank as the lowest total in the past five years.
With so few big deals, the average deal size both world-wide and in the U.S. has plummeted to its lowest levels since 2003. The U.S. saw the steepest decline. Last year the average deal size in the U.S. was $309 million through the first five months. This year it’s nearly half that.
The only thing keeping the M&A business going is activity in the developing world. Deal volume in Latin America is up nearly two-fold, and 175% in India (admittedly off of small bases from 2009).
Perhaps the late Bruce Wasserstein will prove prophetic. Last summer the legendary deal maker said deal activty would not return to peak levels until 2013, and that the four years in between would see only a gradual increase.
Just consider today’s unemployment figures and consider this: If companies aren’t confident enough to hire, are they confident enough to pull a trigger on a deal?

Latest ACG-Thomson Reuters Survey Shows Dealmakers Increased Optimism

After 18 months of pervasive gloom, dealmakers are increasingly more positive about the M&A environment, according to the twice yearly ACG-Thomson Reuters DealMakers Survey. The latest survey results, released at ACG InterGrowth® 2010 on May 5, reveal a sunnier sentiment about the dealmaking environment. While the last three surveys were consistently dreary, with more than 80% of dealmakers reporting a fair to poor M&A environment, the most recent survey reports that 85% of dealmakers expect an increase in M&A activity in the next six months. A year ago, only 56% predicted an increase. The survey, by the ACG and Thomson Reuters reflects responses from nearly 700 investment bankers, private equity professionals, corporate development officers, lawyers, accountants and business consultants in March and April 2010. Here are a few highlights:
Eighty percent of survey respondents identified the current environment as a buyer's market. 97% of corporate professionals expect strategic investments to accelerate in 2010.
The greatest drag on M&A activity today is sellers unwilling to sell at multiples offered, according to 38% of dealmakers. This is followed by the credit crunch, which has steadily decreased in importance as the biggest obstacle to M&A activity (27% today vs. 29% at year-end 2009, 33% one year ago and 43% 18 months ago.)
Thirty percent of private equity executives say that this year they expect the majority of their portfolio companies to experience job growth.
In the past 12 months, 35% of private equity firms say they have marked down their portfolio company values, 43% have held values steady, and 22% have marked them up.
Portfolio companies are showing signs of improvement. Seventy-four percent are performing above their prior year EBITDA, while 26% are performing below last year's EBITDA.
Some 53% of private equity respondents are concerned about the public's perception of private equity. This is an increase from 47% in December 2009.
Three quarters of private equity firms are concerned about a draft U.S. bill that would require advisors of private equity funds and hedge funds to register with the SEC, thus forcing more disclosure to regulators and investors.
A complete report on the survey results may be viewed here.

M&A deals steady as credit, bottom lines improve

Crain's Cleveland Business, Monday May 24, 2010:
Mark Filippell, managing director of investment banking firm Western Reserve Partners, likened the increased activity he sees in the mergers and acquisitions market to the baby boom following World War II.
“The numbers are going to pop. M&A deals are happening,” he said. “It's like in 1946, when the soldiers are back for six months and someone says, ‘No babies are being born.' Well, look down the street; you see a lot of pregnant women.”
Mr. Filippell and others who spend their days looking at deals say that as credit has loosened and bad quarters start to roll off companies' books, the appetite of both buyers and sellers in M&A deals has risen dramatically.
While that pickup still doesn't translate into a pre-recession flow of transactions, it does mean buyers and sellers are pushing forward on deals they could not or would not entertain for the past year and a half or more.
Mr. Filippell said he has seen a number of letters of intent and that Western Reserve Partners “is running flat out” working on transactions, as are a number of M&A attorneys to whom he has spoken.
Stewart Kohl, co-CEO of private equity firm The Riverside Co., said the momentum really picked up in March, after incrementally improving for most of the second half of 2009. Both the number of companies for sale and the quality of those companies have been on the rise.
“What's beginning as a spring thaw is becoming a summer and fall avalanche,” said Mr. Kohl, whose own firm has made seven acquisition so far in 2010. “We're going to see more and more.”
Investment firm William Blair and Co., in Chicago, also noted that activity seemed to increase in March. In an April commentary, the firm said there had been 982 transactions announced in the United States for that month, a nearly 32% increase from March 2009.
Indeed, March marked the fifth consecutive month that the number of transactions increased as compared to the prior year. And the disclosed dollar volume of the announced transactions in March, $140.1 billion, was 72% higher than it was a year ago, according to William Blair.
The reasons for the increase, Mr. Kohl said, include the need for other private equity firms to make exits so they can reinvest their capital; small business owners who are getting older, sicker or simply want to retire to spend more time on the beach; a pending increase in capital gains tax rates that would reward owners who sold before year's end; and increased bank lending that make deals easier to complete.
Tire kickers abound
The deal flow is still “choppy,” said Doug Neary, corporate group chair at Cleveland law firm Calfee, Halter & Griswold, but it's increasing at a steady pace.
Mr. Neary, who also co-chairs Calfee's M&A practice, said earnings are getting better, increasing companies' worth, and proving to potential acquirers that the businesses are strong enough to ride out a bad economy.
The general consensus, he said, is that there will continue to be an increase in activity throughout 2010; Mr. Neary said he expects a “frenzy” by the end of the year.
Nonetheless, he said buyers remain cautious and are “kicking the tires more diligently, now that they see what a downturn can do.”
Linsalata Capital Partners vice president and partner Michael Moran said the increased appetite is coming from all matter of sources.“
After a long time in a very quiet market, we're starting to see some re-emergence of deal activity over the past month,” Mr. Moran said.
A 'rising tide'
Gordon Kaiser, a partner and former head of the corporate practice group at the law firm Squire, Sanders & Dempsey, said strategic buyers with capital on hand are looking for ways to spend it, and banks are more willing to lend for private equity deals.
Mr. Filippell, at Western Reserve Partners, said private equity firms also are willing to put increasing amounts of equity into deals, fearful that they will not find sufficient opportunities before they need to return capital to investors.
Stan Gorom, business practice chair at law firm Hahn Loeser & Parks, said he continues to see particular interest in distressed companies and has seen asset purchase agreements and letters of intent on the rise. However, he said people remain conservative, even as they seek to deploy unused capital.
“It's nascent, it's just beginning,” Mr. Gorom said. “I've seen a few deals, which gives hope.”
Likewise, Megan Mehalko, chair of the corporate and securities practice group at Benesch Friedlander Coplan & Aronoff, said she is “reasonably optimistic” that M&A activity will continue to rise as companies that have a “strong desire to invest and grow and capitalize” take advantage of the improved economic climate.
For most of 2009, Ms. Mehalko said, she was struggling on a monthly basis. From the start of 2010, though, she could see the pipeline of deals going as far as three quarters in the future.
James Dougherty, mergers and acquisitions partner at Jones Day, said increased confidence is a large reason for the change. When a global financial meltdown was a “legitimate concern,” he said, companies did not have a rosy picture of the future and were loath to make acquisitions.“
Although now, it's not 2006, 2007, deals make sense and financing is available,” he said. “There's a marked improvement from last year at this time.”