M&A is on the Rise- Five Factors Supporting Increased Activity
by guest blogger Jarrad Zalkin
Vice President
TM Capital Corporation
The M&A market has been increasingly active in recent weeks, with deals of all sizes and profiles being announced across a broad spectrum of industries. This is certainly a positive indicator for our economy, since healthy volumes of M&A activity are generally clear signs that folks are thinking strategically and acting aggressively. For many, the past several quarters have been characterized by hording cash versus deploying capital and protecting profitability versus investing in top-line performance. This paradigm appears now to have changed a bit, and we’ve been witness to a number of bold moves recently that were clearly motivated by a desire to fuel growth and consolidate attractive markets. I thought it might be worthwhile to spend a few moments considering what market forces are at work promoting this increased activity.
Thawing of the Credit Markets- The debt markets officially look back in business. Senior lenders are once again deploying capital in multiple market layers at reasonable terms. The availability of credit has been warmly received by acquisitive companies and valuation thresholds have increased now that a turn or two of leverage can be built into deal models. This thawing of the senior credit markets has also forced mezzanine lenders to be more generous in their pricing terms.
Return of Private Equity- Private equity firms finally appear to have moved off the sidelines. Over the last ninety days, we’ve seen five $1b+ transactions announced by leading PE players. Additionally, rumors continue to circulate about a Blackstone-led mega-buyout of Fidelity National. If completed, the deal would mark the largest LBO in nearly three years. The reintroduction of private equity back into the market corresponds with the easing of the credit markets and is a great sign for selling companies.
Strong Equity Market Performance- Nearly one year ago, the global economy was teetering on the brink of depression. Since then the S&P 500 index has clawed its way back north, now up more than 120% from the levels witnessed in May 2009. The increased performance is good for both buyers and sellers. Buyers appear to have more of an appetite to use their fairly valued stock as acquisition currency, and increased market caps reinforce stronger valuation propositions for potential sellers.
Increased Risk Appetites- Throughout 2009, management teams were focused internally, feverishly working to preserve balance sheet strength and keep their organizations “right sized.” Risk appetite was minimal. Today, however, the markets have solidified, and while there are some concerns about Europe, companies are again focused on growth initiatives. Risk tolerances have definitely increased, and companies are using their accumulated “dry powder” to move into the market aggressively.
The Celtics are again in Championship Form- For part of the regular season, the Celtics looked a bit tired and mighty old. Not anymore. After dispatching the Heat and slicing through the Cavs, the Celtics are now out to a two game lead on the Magic and looking like a true championship caliber team. While a direct correlation between Celtic success and M&A activity is hard to prove, I’d like to think it’s easier to spend money when everyone in Boston is smiling. Go Celtics!
For further commentary or questions, please don’t hesitate to contact me at jzalkin@tmcapital.com.
