Experts See Little Mid-market Merger Upside

A survey shows 86 percent of executives describing global environment as fair or poor, with 44 percent seeing things getting worse.
Roy HarrisDecember 9, 2008

The global economic maelstrom has hit middle-market mergers full-force, with one twice-a-year survey showing 86 percent of executives in mergers and acquisitions calling the M&A environment “fair or poor,” and 44 percent saying things will be getting worse in the next six months.

The results are the worst ever in the five-year history of the survey, conducted by the Association for Corporate Growth and Thomson Reuters among 970 ACG members and customers of the media company. Listing the main obstacles to M&A activity, 43 percent said it was the credit crunch, with 22 percent blaming sellers unwilling to sell at the multiples being offered, and 16 percent citing the weak economy overall.

Thomson Reuters registers the volume of worldwide M&A at $2.4 trillion during the first three quarters of 2008, off 28 percent from the same time in 2007 — a record year for global dealmaking. Mid-market deals this year, defined as being under $500 million, fared better because they depend less on credit markets. Still, they declined 16 percent, and their total value was $569.6 billion.

Looking to the areas where the most activity is expected over the next six months, 30 percent of respondents identified financial services, with 20 percent saying healthcare and life sciences, 12 percent saying energy, and 12 percent saying manufacturing and distribution.

“While the large sector buyout deals all but shut down in the second half of 2007, the merger and acquisition activity in the middle market was more resilient up until recently,” according to Harris Smith, ACG’s chairman, and managing partner of private equity and strategic relationships at Grant Thornton. Such deals got done “primarily because they were not dependent on security debt.”

Private equity professionals in the survey identified these sectors as having the greatest buyout potential over the next six months: manufacturing and distribution, 20 percent; healthcare and life sciences, 19 percent, and financial services, 17 percent. They identified the “greatest threats to their business” as the credit crunch (65 percent), the overall economy (46) and a lack of exit opportunities (35.)