A Tale of Two Markets: M&A in Q1 2008

In this article from our Spring 2008 Quarterly Newsletter, we share some revealing statistics about Mergers and Acquisitions in the first quarter of 2008, and explain what these numbers mean to our clients.

A tale of two markets - that is how ASG Partners would characterize the story on mergers & acquisitions (M&A) for this quarter.

The pace of mega-transactions has slowed in response to a tightened credit market, but the demand for most privately held companies has flourished. In fact, larger numbers of these transactions are getting done as financial and strategic acquirers shift their attention to the middle and lower-middle markets, which lenders are still actively seeking.

For the last several years, deal volume in the U.S. and around the world has grown, with each year beating the record set in the prior year. In August 2007, the breakneck pace began to slow as the risk of losses on sub-prime mortgages caused uncertainty in the debt markets. As a result, the mega-transactions that dominate M&A statistics were more difficult to fund - and that dynamic continued through the first quarter of 2008. It took 107 days for global M&A volume to reach $1 trillion in 2008, compared with 85 days in 2007. In the U.S., first quarter deal volume fell to $204 billion from approximately $340 billion a year earlier.

That’s the bad news. Here is the good news: First, keep in mind that 2005, 2006 and 2007 were extraordinary years for mergers & acquisitions, fueled by a strong economy and readily available capital. Although 2008 is not going to best the records of the last several years, it is still likely to be among the top ten or maybe the top 5 years in history. Second, the total number of deals announced in the first 107 days of 2008 was the highest year-to-date figure on record according to Dealogic. A record number of transactions generating a lower dollar volume can only mean one thing: smaller transactions are still getting done. Lots of them.

ASG represents companies with revenues from $3 million to $100 million and we found very strong response for companies we took to market last quarter. In fact, the companies we marketed received 4 offers on average. Since the credit markets are hindering larger transactions, more capital appears to be chasing the smaller transactions. Private Equity fundraising reached a record $4.7 trillion in 2007, and investors are looking to place capital with strong companies. Additionally, debt is still widely available for transactions in our market and acquisitions are still a great growth strategy for many corporations. All of which is to say: the market conditions are still very strong for private company owners looking to transition into the next phase of their lives - despite the somewhat gloomy M&A picture that gets reported in the business press.

Market conditions come and go, but there is always demand for strong companies. Perhaps most importantly, maximizing the value of a private company has a lot more to do with proper planning than it does with attempting to "time" the market. For advice on planning, see our articles page.

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