M&A slow, recovery uncertain: report
"Recovery is likely to be gradual and is unlikely to happen in a material way" until at least next year, says GF's Andy Greenberg.
"If mergers and acquisitions business were a movie, we'd be 'Crouching Lender, Hidden Seller,'" says Philadelphia investment banker Andy Greenberg, co-owner of GF Data Resources, a Philadelphia firm that tracks U.S. business deals.
The number of mid-market M&A deals (worth $10 million to $250 million) at 128 U.S. buyout and private-equity firms fell to 21 in the first half of 2008, from 56 in the same period last year and 88 in first-half 2007, GF said today.
Investment firms have plenty of money left over from the mid-2000s, but they're having a tough time getting sellers to accept today's lower prices, Greenberg told me. Only the strongest small medical, info tech and manufacturing companies are getting sold, at prices that still resemble the last two years' levels - 6x to 7x earnings (before interest, taxes, depreciation, amortization), or 2.5x to 3x debt/EBITDA.
Greenberg believes the signs the larger economy is starting to recover. So why are deals so slow? "We talked a lot in the Spring and early Summer about the expectation that middle-market lenders would be leading the way to a market rebound. That has not materialized," Greenberg said. "The banks are digesting their troubles." So are big companies that normally buy smaller ones but are holding back because their prospects are so clouded.
In short: "Recovery in M&A is likely to be gradual and is unlikely to happen in a material way before the first quarter of next year."