Small Business

Mergers and Acquisitions
To Pick Up this Year

After a slow couple of years, dealmaking is back in vogue.

By Renuka Rayasam, Associate Editor, The Kiplinger Letter

March 19, 2010

Conditions for mergers and acquisitions are improving, signaling more corporate deals this year and next. After a tepid two years, the dollar amount of transactions will likely climb by more than a third this year. Deal values will hit more than $950 billion in 2010 and continue to grow an additional 20% in 2011.

"Much of 2009 was a nuclear winter for the M&A industry,” says Dennis White, senior counsel at McDermott, Will & Emery LLP and chairman of the global board of directors of the Association for Corporate Growth (ACG). White blames last year’s conditions on the general economic downturn, lack of credit and a chasm between buyers and sellers on valuations. “I think all three are now improving somewhat,” he says.

Executives are keeping their eyes open for attractive businesses to buy. And they’ll actually find the money they need to finance these deals. About 82% of financiers and consultants surveyed at the end of 2009 by Thomson Reuters and the ACG said they expected the number of mergers and acquisition transactions to increase moderately or significantly in the first half of 2010. About 74% said they expected debt markets to be a little or much better.

As lenders remain cautious, companies will rely less on outside financiers such as private equity groups. Instead, buyers will put in more cash up front, as they finally start to release their hold on funds they’ve been hoarding for the past two years. With the economic outlook improving, companies are more willing to spend their own money. “Now companies feel more comfortable taking risks,” says Dan Tiemann, who heads KPMG’s transactions and restructuring group.

Expect buyers to pick and choose carefully, focusing on expanding existing business lines or filling in gaps in their offerings. “The downturn has separated winners and losers,” says Tiemann. “This is a great time for winners to be picking up weakened competitors and gaining market share.” They will also look at suppliers and other firms they do business with to increase revenue without building a division from the ground up. They won’t be taking chances on any hot new start-ups or exciting technologies.

It will help that sellers are adjusting to and accepting lower market prices. “Sellers are more realistic about what their companies are worth,” says White. For smalls, in particular, valuations have finally leveled off after sinking by as much as 45% since the recession began and revenue streams started to dwindle.

Industries likely to see the most activity: Retail, construction, publishing, financial services and others with too many players still on the field. Plus look for deals in technology and health care, industries that are solid growers.

For weekly updates on topics to improve your business decisionmaking, click here.

• Print
• Comments
• Email
• RSS