Merger and Acquisition Activity in 2012
Recently the Association for Corporate Growth (ACG), in conjunction with Merrill DataSite, conducted an online survey followed by in-depth interviews with M&A dealmakers to gain “insight into the latest trends in M&A transactions and more specifically what their companies are currently forecasting in the near future.”
The ACG is an association comprised of private equity professionals, investment bankers & intermediaries, attorneys, auditors & accountants, lenders, corporate development officers, company leaders, and others focused on acquisitions primarily in the middle-market.
Merrill DataSite is a leading provider of outsourced solutions for complex business communication and information management. Merrill’s services include document and data management, litigation support, language translation services, branded communication programs, fulfillment, imaging, and printing.
We found their survey to be full of compelling information about trends in the M&A world during the next 12-18 months. More than 200 executives responded to the survey making it a representative sample of professionals involved in mergers and acquisitions. One of the most interesting findings of the survey is that 58% of the respondents expect to be either somewhat or much more active in acquiring companies in 2012.
Source: ACG-Merrill DataSite Whitepaper – Trends in Expansion Through Acquisitions
This is especially true of organizations that specialize in the lower end of the middle market. According to Ronald Miller, managing director of investment bank Cleary Gull Inc.:
“The middle market is far more stable [than business news reflects], and the pricing in it is strong,” Miller added “The headlines don’t always reflect reality. At the lower end of the market, it’s much more about what is happening to a specific company rather than what is happening in the world. There is in fact some turbulence in the markets simply because too much money is chasing too few good deals. Strategic buyers have money and everyone is chasing good deals. I think very high quality companies will be able to command premium prices.”
What Will Drive Acquisitions?
What is also of interest is the reasoning behind the anticipated acquisitions in 2012. As we often see with our transactions, most deals close because of synergistic reasons.
Source: ACG-Merrill DataSite Whitepaper – Trends in Expansion Through Acquisitions
As shown, 56% of planned acquisitions will be made to increase market share or allow entrance into a new market or product. Over the years these motivations have been key driving factors in M&A activity.
In 2012 this should really hold true because of the fact that organic growth will be tepid at best. When the economy is only expanding at a 1%-2% rate, it will be very difficult to expand without the use of an acquisition strategy. Couple this with the fact that corporate strategics are sitting on over $2 trillion in cash, and you have an environment that will be very conducive to deal making.
Why You Need to Know
Unfortunately, too many business owners are not even aware that we are potentially entering a seller’s market. This is how Brent Baxter, managing director of Clayton Capital Partners put it:
“Companies whose market value is typically $50 million or less are generally not in a relationship with an investment banking firm on an ongoing basis, so they don’t have this information that their multiples are really, really good.” Baxter added, “The source of information for those companies is basically the media, so they think the world is coming to an end. [However,] in the line of work we’re in, I get to hear a lot of economists, and most of the economists are relatively upbeat about the next 14 to 15 months.”
And based on the ACG/Merrill survey, I would say that most companies involved in middle-market deal making are also upbeat about the next 14-15 months and beyond. As mentioned, the sad reality is that most business owners have no idea that M&A activity has gradually improved since the recession ended in 2009 because they do not have access to M&A consulting and advice. In fact, according to data compiled by Capital IQ, there were over 16,000 deals closed in North America alone in the 12 months ending November 30, 2011.
Generational Equity is likewise encouraged by the current trends we are seeing in the M&A environment. Our goal is to educate middle-market business owners about the fact that the next 12-18 months may present them with a prime opportunity to find optimal buyers for their companies.
If you would like to learn more I would encourage you to do two things. First, we have created a series of whitepapers on key topics you should know about as you begin to think about exiting your business. By clicking here you can review the entire list and download a free copy (or copies).
The second option takes a bit more of your time. We hold free, no-obligation M&A workshops around the country that are designed to provide information to entrepreneurs about how and when to exit your company for the most profit. If you are interested in learning more about our conferences, please click here to review a typical agenda that we cover.
Business owners that attend often tell us that the workshops are the best business-related meetings that they have ever gone to. I am sure you will have the same reaction and ultimately gain some key knowledge on how to effectively sell your company.
Bottom line: Don’t sell your company short. Too many business owners we meet have no idea that their companies have intangible assets that could be very attractive to potential buyers.
Remember what we learned earlier: Nearly 60% of the survey respondents plan on making an acquisition in 2012 in order to increase market share and/or enter new markets altogether. They know that it is cheaper and far less risky to acquire established companies to accomplish these goals rather than to start a new venture. Your company could offer this feature to many buyers. Just keep that in mind.
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