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    Posts Tagged ‘“Association for Corporate Growth”’

    The Debt Effect

    Sunday, February 21st, 2010

    While some global economic indicators suggest an economic recovery is getting underway in earnest, research released earlier this month by global accountancy Grant Thornton LLP (and co-sponsored by the Association for Corporate Growth) argues that a fresh wave of business bankruptcy is nevertheless about to wash over US Bankruptcy Courts.

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    In “The Debt Effect“, a white paper addressing the present state of private equity, Grant Thornton’s Harris Smith – Los Angeles-based head of the firm’s Private Equity practice group – agrees that “[a] global recovery is under way, albeit slowly, and there are reasons to be cautiously optimistic about 2010 and beyond.”  Against that backdrop, however, he cautions the arrival of a nascent global recovery does not mean deal-making and the lending supporting it will immediately return to its prior levels – or that it will all look the same as before when it does.  More importantly, he demonstrates that additional corporate distress is likely on the way.

    Specifically, Harris notes that mergers and acquisition activity remains at levels that are a mere fraction of what the same activity was during 2006 and 2007.  Moreover, a significant portion of deals done earlier in the decade are now in jeopardy:  According to Moody’s, over 50 percent of the deals done between 2004 and 2007 by big private equity funds are now either in default or distress.  Many of these situations have been addressed – at least temporarily – through debt extensions and other types of forbearance.  But many of these temporary fixes are set to expire.  Moreover, Harris’ research projects that “[t]he number of maturating loans will steadily increase until it peaks in 2013.  The opportunities for distress buyers will continue to grow during this time because many companies will not be able to meet their debt obligations.”

    According to Grant Thornton’s Marti Kopacz, national managing principal of the firm’s Corporate Advisory and Restructuring Services, “We expect the restructuring wave to be a three- to five-year wave.  This is only the first year.”

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    Buyer’s Market? Or Seller’s Standoff? A Look At The Numbers

    Sunday, December 20th, 2009

    Several posts this year – the most recent one here – have noted the general buyers’ market prevalent for strategic buyers shopping for distressed M&A.

    A recent CFO.com article drives home the same point, but with more specificity . . . and an important caveat.  Kate O’Sullivan’s piece entitled “Strategic Buyers Still in the Catbird Seat” observes that though overall M&A activity has been off by as much as 1/3 from 2008 levels, strategic buyers closed 94% of this year’s deals.  Strategic buyers appear to have a continued advantage heading into 2010, and – as was the case this year – distressed assets are expected to comprise a significant portion of next year’s deal activity.

    However, the current buyers’ market is not necessarily a bargain-hunters’ bonanza.  Though a recent survey by the Association for Corporate Growth (ACG) and Thomson Reuters (summary available here, with statistical summary here) suggests a modest pick-up in transactional volume for 2010, O’Sullivan (citing the ACG data) notes continued constraints on credit and – perhaps more importantly – a fundamental disconnect over valuations buyers and sellers are willing to accept.

    Either or both factors may hamper any significant increase in deal volume over 2009, but the ACG survey suggests that pricing multiples may be the sticking point for many deals.  “[M]ultiples for middle-market transactions in general have fallen markedly, from a high of 10.1 times EBITDA (earnings before interest, taxes, depreciation, and amortization) in 2007 to 8.4 times EBITDA today, according to survey respondents. They may go still lower: 80% of respondents say they expect to pay no more than 5 times EBITDA for targets in the next six months.”

    Not surprisingly, most sellers will be reluctant to sell at prices reflecting just half the multiple they could have obtained only 36 months ago: “37% of survey respondents cite valuation problems as the biggest hurdle for deals right now.  ‘Sellers try to argue that you shouldn’t look at the current environment when valuing their company, that it’s just a bump in the road.  But buyers are reluctant to buy that argument,’ says [ACG Chairman Den] White.”

    What buyers will buy remains to be seen.  Stay tuned for a fascinating 2010.

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