CURRENT M&A INFORMATION

2008 Middle Market Forecast                                                                                           

With the slowdown of private equity expected through at least mid-year 2008, much more activity from strategic buyers is expected.  And, as noted by Thomson Financial in 2007, fully 31% of all M&A deals involve companies with a market value of less than $500 million.

The strategic buyers are truly at an advantage at this time. Corporations are mature and consolidating. Their EBITDA (earnings before interest, tax, depreciation and amortization) to Cash flow remains consistent and they continue to have undervalued assets to sell.  With the uncertainty of the current financial markets and cost of debt for the private equity buyers no immediate recovery from the private equity market is foreseen; however, they still have cash -- they are just much more scrupulous in the transactions they will complete.

With private equity less active and strategic companies flush with cash and little need for the debt markets, middle market activity is forecasted to stay strong through 2008.  The foreign buyers are using the current exchange rates to pay excellent premiums and with that geographic expansion is a strategy for many buyers from Europe and India in particular. 

Going into 2008 and beyond, exchange rate, geography and the human factor, i.e. Baby Boomers, will continue to enhance the middle market M&A growth. 

The top active industries for 2008 are healthcare services and the energy markets, in particular oil and gas services as reported by CIT Executive Insights - 2008 Middle Market Outlook with Walter J. Owens, President of Corporate Finance at CIT.  Based upon the market indicators, expect the 2008 Middle Market M&A climate to continue. However, expect the predictable slowdown through the pre and post US presidential election and the traditional “wait and see” time frame.

2007 - in Review

2007 M&A Market

The 2007 merger and acquisition environment remained strong through year end, with an expectation that this trend will continue through the first half of 2008. 

Completed transaction results for 2007 exceeded 2006 marginally, with global transaction values of $3.8 trillion and completed deal volumes of 28,846 as compared to 2006 with $3.1 trillion and volumes of 27,263 as reported by Thomson Financial.

The European M&A market remained active in 2007, largely due to favorable exchange rates and, of course, geographic expansion.  This is evident where the European M&A market transacted more deals for less in 2007. European M&A transaction value of $1.2 trillion was slightly lower than the US value of $1.7 trillion yet the European volume was slightly higher at 9,728 compared to the US volume of 8,747.

Private equity continued to be the driving force in the first half of 2007; however, with the credit crunch beginning in the summer of 2007 there was an immediate shift in transaction volume and values.  With the main driver for the private equity M&A market being cheap debt, private equity firms accounted for 41 percent of the US M&A market at mid-year.  The second half brought much more discriminating private equity to the market and there was very little activity for the billion dollar deals with a decline to 32 percent for 2007 overall. 

2007 Middle Market M&A
Target revenues of $20M to $500M in USD

In 2007 the overall Middle Market M&A transaction values were $943 billion with the US accounting for $121.2 billion and the European Middle Market accounting for 73.4 billion, compared to 2006, where the Middle Market M&A values were $364 billion overall with the US accounting for $171 billion and Europe accounting for $101 billion.

The top three sectors in 2007 for M&A were financials, materials and energy and power.  Geographically, transactions were predominately seen in the Americas, Europe and Central Asia/Asia Pacific.  This trend is likely to continue, barring no major terrorist acts, stable energy costs and interest rates.  Potential hot sectors for middle market M&A include financial services, energy and healthcare/pharmaceuticals/ life sciences as reported in the CIT Group study released July 2007.