"You're going to see a lot of deal chatter and due diligence converting into transactions late in the second quarter and the second half of 2010," predicts Tom Bonney, managing director at Society Hill-based financial and operations consultant CMF Associates.
He called from Miami's South Beach, home to this year's gathering of middle-market investment bankers and private-equity firms sponsored by the Association for Corporate Growth. Last year's conclave in Vegas was a "subdued" affair, with too much money stalking almost no deals, he told me at the time. But this year folks are "significantly more buoyant."
The slump has created "winners, losers and wounded ducks. Now we'll have the consolidation. The winners are picking up the wounded ducks among their competitors," Bonney said. "They're starting to make investments that they put off for two years." After all that cost-cutting, "it's an opportunity to take market share, expand profit lines, and seek out export opportunities, especially for niche manufacturers." Troubled firms are selling for "working capital and workout," which means cheap.
I'll believe it better when we start to see examples. Bonney offered one: Key Action Sports LLC, Sewell, which makes paintball equipment, picked up competitor JT Sports, Neosho, Mo., in February, for a song. How much, he didn't say... .. Meanwhile, Bonney says Miami's full of Philadelphia dealmakers down for the show. "Milestone is here, and Larsen McCall, Argosy Capital, Janney Montgomery Scott's Andy Zucker - they're very busy - and Bruce Fenton from Pepper Hamilton," among other locals down the Beach seeking deals.
"No question about it, deal flow is up in recent weeks," Milestone's John Nowaczyk told me in a separate conversation. "A year ago was nuclear winter. But now, there's a lot of money that needs to be put to work quickly. And we're seeing prices spike up pretty significantly." Milestone raised a timely fund that allowed it to keep buying small firms through the past two years; "we didn't even have to go to auction, there was a lack of buyers in the market." But now, "we're back to the old days of Spring 2007. Things that were worth six or seven times EBITDA are going for seven or eight times, or more."
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