After two years of frigid credit and economic turmoil, it would seem the floodgates for merger activity would be well-primed to open in 2010. Yet guarded expectations regarding economic recovery—tempered by doubts about employment, credit access, and the robustness of consumer spending—hardly encourage companies to pursue aggressive growth.
Some experts sense a better disposition toward acquisitions and divestitures among strategic and financial buyers than just six months ago, but that may not translate into a big boost in completed deals this year.
Speakers at a panel discussion during an M&A leadership conference in New York on Jan. 26 told the audience they expect more of an M&A burp than a boom in 2010. That assessment is based not only on a sober view of the U.S. economic recovery but also on a wide gap between how sellers and buyers are valuing assets that might go on the block. More than 200 people attended the conference, a mix of private equity executives, M&A strategic and business development professionals, and attorneys from advisory firms.
Paul Schneir, co-head of M&A at KeyBanc Capital Markets in Cleveland, said he detects a pickup in momentum for M&A among private equity firms and other financial sponsors, who bring capital and expertise to deals but rarely manage the companies they buy. These firms are looking to sell businesses they have owned for several years, which generally performed well through 2009. They believe strategic buyers may currently value these assets much the way they would have valued them several years ago.
Strategic players—companies that seek to buy assets that match their core strengths either to improve their position in existing markets or to gain access to new ones—may need to act quickly if they want to be ready for the return of consumer spending, says Howard Silverblatt, head of index services at Standard & Poor's (MHP). "Companies have record amounts of cash and shares [to offer]. They have all the tools they need" to make acquisitions, he says.
Despite the belief that there's a lot of pent-up demand for acquisitions, the latest data suggest otherwise. Year-to-date as of Jan. 27, 642 acquisitions worth a total of $31.69 billion had been announced by U.S. companies for target assets around the world, according to data research firm Dealogic. That's a 7% decline in volume, and a 67% drop in value, from 694 deals worth a total of $95.18 billion announced in the same period of 2009.
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