In M&A, Is Flat the New Up?

By Dennis McCarthy – (213) 222-8260 – – 

In my experience with M&A deals, everything increases; it goes up.

All projections show increases in revenues and profits.  If you buy a company today, you’ll sell it for more money later.  Deals get bigger. Debt leverage goes up.  M&A multiples go up.  The M&A business, itself, goes up.  But what if…?

That’s the sobering message from  a study of middle market M&A published by Deloitte, the international accounting firm, looking back over 2011 and 2012.

Deloitte reports that between 2011 and 2012, middle market M&A was flat.  Deal volume was flat. Average deal value was flat.  Purchase price multiples were flat. Senior debt multiples were flat.  You get the idea.

But look on the bright side.  At least those metrics were flat.

International acquisitions of US middle market companies declined.

Purchase price multiples of LBOs declined.

All things considered, flat may not be so bad.  Maybe flat is the new up.

Supposedly, statistics don’t lie.  But 2012 certainly seemed to me to be a better, more active year than 2011.

Company executives I know seemed to be more confident that the economy was stable.  Not big growth but no big problems either.

Maybe we won’t see the impact of the improved environments until this year, 2013, given how long it takes to close an M&A deal,

I know I’m looking forward to an active 2013.  In any event, I’ll take flat over down every time.

I’ve attached a link to the Deloitte report below.

Please contact me to help your company with M&A or any capital market project. 

Deloitte US Middle Market M&A Stats 2012



M&A Technique Upheld

Dennis McCarthy – (213) 222-8260 –

At the end of 2012, The Delaware Chancery Court upheld the use of a valuable technique in the auction of public companies, referred to as the “don’t ask, don’t waive” provision.

This provision prevents the bidders who lose in an auction from making a topping bid once the winning bid is determined.  It is designed to encourage bidders to make their best offer knowing that they won’t be forced into additional rounds of bidding.

It is a technique used to get sellers the highest price and to bring closure to an auction.

This provision, usually inserted into the standstill provisions of a non-disclosure agreement, is agreed upon at the very beginning of the auction process, often without much attention, when potential bidders are cooperative and eager to get started on their evaluation. 

It comes into play, however, at the very end of the auction process after the potential bidders’ evaluation is over and final bids have been submitted.

So, what’s the issue?

Under Delaware law, Board’s of companies have the duty to maximize value on a sale and to be fully informed of the potential for higher bids.

So, does the “don’t ask, don’t waive” provision prevent the Board of a selling company from entertaining potentially topping bids from losing bidders?

This was the question addressed by the Delaware Court. In a ruling Mid-December, the court determined that a selling company can use the “don’t ask, don’t waive” provision as a tool to maximize value as long as the Board, its advisers and  shareholders are aware of its use and understand its impact.

The “don’t ask, don’t waive” provision, therefore, remains an available technique for use by selling companies.

I think that this will be a very active M&A year. 

Companies and their advisers need to be informed about the latest developments in M&A.

Please subscribe to my blog to get current updates on key trends in the capital markets.  Also, please contact me to help your company to get the best M&A deal or to successfully complete whatever capital markets project you pursue.

Background article on the topic:



M&A Boom

Dennis McCarthy – (213) 222-8260 –

The Wall Street Journal recently ran a story entitled “Buyout Boom, But Not Like ‘07”.  The article quoted M&A and buyout professionals citing the reasons for the increase in deal activity including (i) availability of low cost debt, (ii) a reasonably stable and predictable economic environment, and (Iii) pent up supply by sellers who took businesses off the market during the recent economic downturn.

It caught my eye that the average deal size so far in 2012 is smaller, averaging $156 million and less than half the average deal size in 2007 according to Dealogic’s tally reported in the article.  Now, this year’s deal size is in the sweet spot for my colleagues and me at Monarch Bay and AgriCapital.

It’s true, my colleagues and I are seeing a rebound in M&A activity from the depressed levels of ’08 and ’09.  We see much more M&A activity, however, involving corporate buyers than private equity groups. 

Don’t get me wrong. I’m not disputing the Wall Street Journal article.  I’m just suggesting that the bigger story is the M&A boom involving corporate buyers.

Corporate buyers need to show growth and are finding organic growth is hard to come by.  Cash rich corporate buyers have turned to the M&A market to buy growth.

So, if you own a company and have been considering a sale, now may be the time to go to market whether the buyer is corporate or a private equity group.

Here are some additional observations on the M&A environment today.

In general, companies are running lean and mean now.  This goes for sellers and buyers.

This means that sellers, who need to keep their eye on the ball to maintain their business, should hire experienced investment bankers to manage the sale process.  That is the best way to stretch your company’s resources.

Because the buyers are also running lean and mean, the seller’s offering materials need to be crystal clear and compelling to get buyer attention and top dollar. Having an experienced advisor help prepare your offering materials makes a big difference.

To get the best price in the sale of a business, it helps to create competition among the buyers.  Many times it takes reaching out to a large number of potential buyers to create that competitive environment. Knowing the buyers to contact, as we do, speeds this process.

For sellers who are wary of disclosing too much to competitors, we can limit what’s made available to potential buyers. That remains under the seller’s control.

Am I getting the best price?   Every seller asks this question.  The answer is that if the economic environment is favorable and you’ve run a professional auction, you can feel good that you’ve gotten the best price.

Today, the environment is right.  We can run a professional auction to help you get that best price.  Please contact me or any of my colleagues to discuss your company and your goals.

M&A Boom

M&A Boom

It’s Deja Vu All Over Again


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Yogi Berra was right:  “It’s Déjà vu all over again.” 

Those of us who’ve been in the financial markets for a number of years have seen Wall Street prices rise and fall periodically.  I can’t predict exactly when they’ll rise or fall but I’m certain they will.

Therefore, when stock prices fall across the board, I don’t panic. I know it’s a cycle; prices will rise again eventually. 

Also, experience has taught me that when stock prices fall, public companies should once again pull out and dust off for consideration certain time tested corporate actions.

It’s kind of like pulling out the snow gear this time of year.  It’s a ritual.

What kind of corporate actions are appropriate to consider when stock prices drop?

First, I would say is stock buybacks. 

Yes, I know that my prior blog post cited a McKinsey Quarterly article reporting that companies don’t actually buy back stock when stock prices are low. 

My point is that public companies should consider a buyback program and, if appropriate, follow through.

Next, not to be paranoid, but public companies should review their takeover defenses.

Particularly now when big companies are awash in cash and their organic growth has slowed, big companies may see acquisitions as a smart means to get growth by putting their cash to work. Heaven knows, cash earns nothing sitting in the bank.

There’re a number of common takeover defenses, some which vary depending upon the company’s state of incorporation.  Common defenses include poison pills, staggered boards, shareholder vote submission and vote threshold provisions.

What I’m recommending here is that a company review with its Board, attorneys, investment bankers and IR professionals just what’s appropriate for the company given its circumstances.

Third, be proactive about M&A.

Rather than sit back and wait for a suitor to call, go ahead, evaluate your competition and all the adjacent players, those companies which are not direct competitors but are nearby.  Make sure your analysis includes all the global players too. It’s a very small world now.

For companies operating in several businesses, you really must evaluate each business independently.  Who knows, this might even lead to a split-off like that of ITT and Sara Lee.   

The goal of this analysis is to determine where there are good fits with your company, where one plus one equals three or more.  Even if you don’t immediately act on the analysis, you’re better off knowing the landscape if a suitor calls.

While you’re looking at alternatives, you should consider whether a “go private” or “go dark” transaction makes sense for your company.  Unfortunately, for many companies, the cost of being public outweighs the benefits.

I can help your company to consider all these actions in a timely and cost efficient manner .

Please contact me with questions or to discuss any of these projects.

Living with No Growth

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Lately, I’ve been struggling with what it will mean to live in a world of slow to no growth.

First, I tried denial.   There can’t be a world without growth.

Pick up any company annual report or analyst research report, they always project growth.

It’s in our Wall Street DNA.

We need growth to cover our costs, to justify higher salaries, to reward our shareholders?

But, what if, as is now widely expected, we face a global slowdown for our near-term future?

How do we behave in a slow to no growth world?

We’re going to have to rethink many of our basic assumptions. Here are a couple which come to mind.

First, I think cost control will become more critical without revenue growth to bail us out.

Will this trigger a power shift in companies?  Will the path to become CEO now run through accounting?

Second, I think that, without growth, current cash flow is king.  There’ll be more skepticism about the promise of future cash flow.

Will this spark a rash of corporate acquisitions as large, cash-flowing companies gobble up companies with no or low cash flow?

On the financing front, with slow to no growth, will companies borrow more to get as much financial leverage as possible.

Or, will equity securities change?  Will we see more companies begin to pay dividends or do regular stock buybacks to pay a current return to their equity shareholders.

These are just a few ideas.  There are many more potential implications.

Please contact me to discuss the capital markets implications for your company.

My contact information is below. Thank you.

(213) 222-8260

Slow Road Ahead

Living with slow to no growth

What now? Where can I get capital?

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Well, it’s the Fall of 2011, Wall Street has been highly volatile as fears of a new recession and disarray in the Eurozone dominate the news.

As I talk with clients and friends, the discussion always comes around to the question “now what?”  What if my company needs capital?  Where can I go?

First, there’s debt.

The debt markets are open for business.  Based on my experience, finance companies and banks are lending.  The public debt market is open too.

A borrower’s projections may get more “stress testing” now but interest rates are historically low.

Second, there’s asset sales

In part because debt is available, buyers are active. If your company needs to raise cash, you might consider selling a business.

I know companies who’ve raised cash in this manner.  They’ve gotten good prices for the businesses sold and are now deploying the money. 

Third, large cash-rich corporations may be a source of capital for your company. 

Sometimes these relationships take the form of direct equity investments into your company but many times they take the form of JVs, licenses, cash advances or even simple grants.

These deals work when the relationship benefits the large company’s business, even if indirectly. 

Lastly, don’t forget equity.

You may wish for higher prices when selling equity but you should also be pragmatic.  You should ask yourself “how critical is the having cash now?  What is the investment opportunity?  Does it justify the cost of raising equity now?”

Again, my name is Dennis McCarthy.  I’m happy to discuss funding options with you.  My contact information is below.