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Sunday, 27 September 2015 22:13

M&A activity remains elevated heading into year end

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Maat Maat

M&A activity remains strong heading toward the last quarter of 2015, sustaining a seller’s market as financial and strategic buyers compete for good deals.

Attorneys and brokers handling transactions say deal volume to date rivals 2014 and should continue at that pace at least through the end of 2016, fed by a solid economy, readily available financing and a strong appetite among prospective buyers.

“We’re continuing to see a good interest in the market when something gets brought to us,” said Brandon Maat, who handles market development for M&A firm Rua Associates LLC in Zeeland.

“The market is still very good, especially as businesses get larger and they’re going to be of more interest to a private equity or a strategic (buyer),” Maat said. “We’re fully on board for a really good last quarter.”

Rua Associates typically focuses on the middle market and below and works with companies that have sales of $1 million to $50 million. A majority of the firm’s clients are involved in manufacturing.

If a seller has earnings before interest, taxes, depreciation and amortization (EBITDA) in excess of $1 million, “it’s really not an issue of finding interest in your company. It’s a question of what type of person you want to sell to at the end of the day,” Maat said.

Phil Torrence, an M&A attorney at the Kalamazoo office of Honigman Miller Schwartz and Cohn LLP, said the practice group he leads is on pace to match or exceed the 154 deals it closed in 2014 for a cumulative transaction value of $13.9 billion.

Torrence, whose practice group of eight M&A attorneys work in the middle market and up, suggests business owners who are considering putting their company up for sale in the next year or two need to begin weighing their options now while the market remains “very, very robust.”

“It’s still, I think, one of the best times to sell in my recent memory,” Torrence said. “Rarely is it that we enter into a process (with a client to sell their company) where there’s not at least three or four interested parties that get down to the final selection.”

The high level of activity is driven largely by private equity funds that have been “very active” buyers in the last two years and are now making add-on acquisitions for portfolio companies, Torrence said. That has contributed to keeping deal multiples high, as more competition for good deals elevates purchase prices.

“When there’s competition, everyone has to sharpen their pencils. What that equates to is usually paying more,” said Torrence, who anticipates a strong M&A market for the near term.

“I would say that I’m feeling bullish on the next six months,” he said.

Nationally, middle-market deal flow through the first half of 2015 “grew at a strong pace despite deepening global economic concerns and the threat of interest rates rising,” Birmingham-based investment bank Angle Advisors LLC noted in a recent update to clients.

Middle-market deal volume with enterprise values of $10 million to $500 million increased 11 percent in the second quarter from the first quarter and 14 percent from a year earlier. Average purchase price multiples declined in the second quarter to 6.8 times, versus 7.5 times for all of 2014, although Angle Advisors considers this a “statistical anomaly” driven by a small sample size in the quarter. The company anticipates this year’s third quarter multiples to be in line with 2014 averages.

Martin Stein, the founder and managing director at Grand Rapids-based private equity firm Blackford Capital, reports a “very active year for deals” so far in 2015. Blackford Capital has closed on five deals this year, four for its Michigan Prosperity Fund and one for a national fund.

Stein expects Blackford Capital to close another three or four deals by the end of the year, most of them for the Michigan Prosperity Fund.

“It’s been a very, very active year for us,” said Stein, crediting the increased awareness of the firm in Michigan and a healthy pipeline of prospective sellers.

“It is a good market. We’re coming out of a favorable several years … that have all been robust years for the economy, and as a result, people that were around in 2007, ’08 and ’09 are thankful and say that this is a good time to exit their business.”

The Michigan Prosperity Fund in August closed on a deal to acquire Dickinson Press Inc., a Grand Rapids-based manufacturer of books and other printed material for the religious, education and business markets. Blackford Capital followed up that deal with an add-on acquisition by Minneapolis, Minn.-based Staging Concepts, a designer and manufacturer of staging equipment and railing systems. The company bought Architectural Railings & Grilles of Fort Mill, S.C., a producer of welded aluminum, glass and stainless steel railing systems.

This year so far has been a record year for transactions at Grand Rapids M&A firm NuVescor Group, said Managing Director Keith Lang. Willing buyers have outnumbered willing sellers this year more than usual, keeping transaction multiples high and generating strong competition among buyers for quality companies whose ownership wants to sell.

“The pipeline is good, but it can always be better,” Lang said. “It’s a limited amount of sellers and a rather broad field of buyers right now.”

Like many M&A professionals, attorney Brian Page of the Grand Rapid office of Dykema, expects a strong market to continue through the fourth quarter. The economy remains in good shape, credit is generally readily available as banks remain aggressive in competing to finance transactions, and strategic buyers are staying active, Page said.

“Chasing growth is still a huge part of the M&A puzzle right now,” he said. “I don’t see any change at least with the near term and probably through the balance of this year” in M&A activity.

Another indicator of the good M&A market nationally comes from the growth in listings on the website, which increased 14 percent in the second quarter from the same period in 2014 and reached the highest level since 2009. The median asking price for a small business grew 13 percent from mid-2014 to mid-2015 and the median sale price increased 12 percent.

Read 3065 times Last modified on Monday, 12 October 2015 12:44

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