M&A Boom

Dennis McCarthy – (213) 222-8260 – dennis@monarchbayassociates.com

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