According to Fairfield-based ACG/Thomson”™s DealMakers November survey, 2007 will go down in the books as a record year in worldwide mergers and acquisitions. Three-quarters of industry professionals harbor a positive view of the current environment, even if they”™re less confident than they were six months ago.
The survey is completed twice yearly, polling 813 investment bankers, private equity professionals, corporate development officers, lawyers, accountants, consultants and other service providers involved in the deal economy.
DealMakers anticipates a decrease in buyouts in the next six months, and an increase in troubled deals. Still, three-quarters of those surveyed say they are not modifying their investment strategy.
According to the survey, the percentage of professionals who say the current merger and acquisition environment is good has dropped to 72 percent from 93 percent over the second half of 2007, and the percentage who believe the number of transactions will increase in the next six months fell to 25 percent from 38 percent since midyear. Those who say mergers will decrease more than doubled to 38 percent from 16 percent midyear.
The data say investment professionals are increasingly looking at cross-border deals. While nearly half of respondents have not taken part in cross-border transaction in the last year, 56 percent believe that they will be doing a cross-border deal in the next six months. The areas that are most likely to be involved are Western Europe, Canada, and China.
“Given the predominant middle-market focus of private equity firms in lower Fairfield County, M&A (mergers and acquisitions) deal flow continues to be strong locally,” said Ramsey Goodrich, president of the Connecticut Chapter of ACG and Managing Director at Carter Morse & Mathias. “With most of our members either raising new funds or working from funds that have recently closed on their targeted goals, we anticipate deal activity to remain strong in Connecticut and our surrounding areas in 2008.”
Â
According to Thomson Financial, through mid-December worldwide merger and acquisition activity shattered all previous records, reaching $4.35 trillion, a 20 percent increase above last year”™s record. Nonetheless, as global market conditions worsened in the second half of the year, there was a 30 percent decrease from the record-breaking first half. Cross-border activity contributed greatly to this year”™s volume, accounting for a record 47 percent of announced deals this year.
“The high degree of optimism that characterized the private equity buyout market at the start of the year has been replaced by a great deal of caution at the end of 2007,” said Robert Keiser, vice president- proprietary research at Thomson Financial.
According to Thomson Financial, private equity buyout activity accounted for as much as 41 percent of total announced U.S. merger and acquisition activity as of the first week of July, but has only averaged about 15 percent of weekly activity announced in the second half of this year.
“This clearly portrays how damaging the credit crunch has been to the business model of private equity firms, and especially the firms that specialize in the larger, so-called mega-deals,” said Kaiser. “The extent that private equity insiders remain cautiously optimistic about the deal making environment heading into 2008 can be explained by the fact that the vast majority of buyouts are categorized as smaller to middle-market sized deals, which continue to be announced at the lower end of what is historically considered a normal run rate for announced deals.”
The survey points to more of a balance of power between buyers and sellers of companies. In the new survey, 39 percent say it is a buyer”™s market and 33 percent say it is a seller”™s market. In the midyear 2007 survey, 75 percent said it was a seller”™s market and only 13 percent a buyer”™s market.
More than two-thirds of private equity professionals say the amount of private equity capital available for investment is higher than it should be. Private equity firms identify the greatest threats to their industry as the credit crunch and competition with other private equity firms.
Those surveyed are generally optimistic that the debt markets will be in better shape a year from now. In the midyear survey, just before the credit crisis hit, respondents foresaw the coming troubles; just over half said the credit market would get at least a little worse.
Â
