Mergers & Acquisitions Industry News

1stWEST M&A Update Summary / 2009 Overview

1stWEST Mergers & Acquisitions is a full service national and international investment banking and advisory firm that is focused on the underserved lower middle-market of companies with sales of $10 to $100 million.  In 2009, with the volatility in the credit markets, continuing levels of high employment and uncertainty in the economy, completed deal volume showed a modest increase over the prior year.  It was a bifurcated market, in which quality companies with TTM EBITDA margins and revenue growth > 10%, were able to achieve close to pre-downturn valuation as is shown below:

 

 

Source:  GF Data Resources LLC

  

Source:  GF Data Resources LLC

 

Quality companies traded at 5.8x multiple to EBITDA or a 13% premium over other deals and close to historic levels.  There was a scarcity of quality deals that came to market in 2009 with investors bidding up the price of these deals.  Currently, many strategic acquirers are in a strong cash position and eager to re-enter the acquisition market, while PEGS have over $500 billion on the sidelines that needs to be invested.  There are more buyers than sellers and this will be good news for quality companies with sound financial fundamentals.

 

Selected Financial Highlights

Source:  GF Data Resources LLC

 

Source:  GF Data Resources LLC

 

2010 Outlook

The credit markets are starting to settle; asset based lending and the mezzanine lenders are strong and cash flow lenders are returning to the market.  Lending is starting to return and lenders want to put capital to work for the right quality deal.  Regional banks that avoided many of the problems of the larger global credit market, are today driving much of the liquidity in the lower middle-market.  PEGS have a lot of capital on the sidelines that needs to be invested.

Foreign direct investment (FDI) to Latin America and the Caribbean are expected to increase between 40%-50% in 2010 to over US $100 billion.  The main recipients of the FDI, will be Brazil, followed by Chile, Mexico, Columbia and Argentina.  The region has shown good growth prospects and presents a good investment opportunity for companies wishing to expand beyond the US borders.

The outlook for the US economy is gaining strength with a strong 4th quarter 2009 GDP rate of 5.7% and the 1st quarter of 2010 posting a 3.2% GDP gain.  These results support the theory that the recession ended last summer and new GDP forecasts for 2010 are being raised to 4%.  US companies earnings have rebounded and excellent results were produced in the 1st quarter.  Real GDP growth in many key emerging markets have raised GDP projections to exceed 7%.  While Europe presents a risk, it could drive FDI to Latin America and Asia.

For the lower middle-market of companies we serve, the cloud over the economy is lifting and real gains will be achieved in the 2nd half of 2010.  With the current scarcity of quality deals, valuations will continue to increase throughout the year.  With the capital gains tax of 15% expiring in 2010, we believe many companies who had planned on selling will try to get their businesses sold before the increase in capital gains tax.