Connecticut dealmakers say the current merger and acquisition environment remains stagnant, but they expect business activity to pick up in the state during the first half of 2010.
According a recent survey done by the Association for Corporate Growth and Thomson Reuters, which polled dozens of investment bankers, private equity professionals, and business consultants in the state, 87 percent of Connecticut dealmakers say the current M&A environment is fair or poor, compared to 90 percent at midyear 2009. Over the next six months, however, the percentage of Connecticut dealmakers who expect an increase in merger activity jumped to 81 percent, from 22 percent one year ago.
“A year ago the world blew up,” said Ramsey Goodrich, managing director at Carter, Morse & Mathias, a regional investment banking and financial advisory firm in Fairfield. “Credit evaporated and the M&A and private equity market were severely hampered. But strategic investors are starting to think we’ve found a solid footing.”
The Association for Corporate Growth is an industry group made up of M&A professionals who focus on middle-market transactions valued at less than $1 billion.
Signs Of Rebound
Goodrich said the recession has led to shrinking orders and revenues for many companies, forcing investors to reexamine and reduce their cost structures, which has drained capital in the market.
As a result, the volume of M&A activity through Nov. 30 dropped 33 percent to $1.8 trillion, compared to the same time period in 2008, according to Thomson Reuters.
At his six-man firm, Goodrich said deal flow has been good in the last year, but their business has changed a bit.
He said traditionally the bulk of his firm’s work has been representing sellers in deal-making activity, but over the last year their workload focused much more on helping companies grow capital and refinance debts.
But Connecticut dealmakers are starting to see some better signs for increased activity in the coming months, as company earnings begin to rebound, signaling that customers are beginning to come back to the market.
Recently, Connecticut has been in the middle of two high-profile mergers and acquisitions: Comcast is acquiring a majority stake in NBC Universal from Fairfield-based General Electric, and New Britain-based Stanley Works is acquiring Maryland-based Black & Decker.
According to the ACG-Thomson Reuters survey, Connecticut dealmakers expect health care/life sciences, manufacturing and distribution, and the financial services sectors to experience the most merger activity in the first half of 2010.
Additionally, the industries that present the best opportunities for buyouts are manufacturing and distribution, financial services, and healthcare/life sciences.
Goodrich said that health care is a big target industry for buyers and sellers because of the state’s demographics. As Baby Boomers age, there is an increased demand for health care services, meaning that investors are willing to park their dollars in that sector.
The looming possibility of health care reform will also likely drive M&A activity in the coming months. “It’s a highly targeted, fragmented industry, which makes it very attractive for deals,” Goodrich said.
The financial services industry, which represents a major sector in Hartford, has been hit hard by the economic downtown, forcing many companies in search of a capital infusion, Goodrich added.
Sixty-nine percent of respondents to the survey also indentified the current environment as a buyer’s market, largely because sellers expectations on deals are starting to lessen.
Jamie McCleary, a partner at New York-based Willis M&A Group, said that for most of 2009, many business owners were overvaluing their companies, largely because sellers’ expectations tend to run 12 to 18 months behind where capital markets and the economy actually are.
But now the inverse is happening, McCleary said.
“There is a better alignment between buyers and sellers expectations,” McCleary said. “There are a lot of businesses in a poor cash flow position that need a capital infusion. At the same time there are a lot of hungry buyers that haven’t been active recently, but are chomping at the bit to get their money out there.”
Among the survey’s other findings:
• 72 percent said the current market favors strategic investors;
• 59 percent see distressed sales as comprising up to half of all M&A deals in the next six months;
• 66 percent are actively pursuing distressed and undervalued companies.
Greg Bordonaro is a Hartford Business Journal staff writer.
