Waiting and watching: Uncertainty keeps businesses out of M&A activity - The Business Journal of Milwaukee:

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Stock prices are a crucial factor in the success of hisMilwaukew mergers-and-acquisitions consulting business, Emory & Co. Stockj is both the currency of many transactionds involving publicly traded companies and a barometer of busines andconsumer confidence. With stock prices and consumer confidencew at alow ebb, the mergers-and-acquisitions field is feeling shell-shocked. Much like the rest of the the industry has gone from overheateed to nearly frozen inrecent months. “For most now is not the optimal time to Emory said.
The challenging stocm market is just one of severalo reasons activityhas slowed, said Milwaukee-area consultants, attorneyas and investment bankers who handle mergers and acquisitions. Financing, of has been difficult since at leasty September 2008 when the creditcrisis hit. Banks have all but withdrawmn from participatingin transactions. Privates equity firms, which fueled much of the activity inrecentt years, have pulled That leaves cash as the key to buyers’ ability to do and even companies with strong balance sheetes are hesitant to part with it. Potential acquirers worry that they’lo need the cash to survive the recession or to complt with bank creditline covenants.
“They’rde reluctant to pull the trigger even on good saidDoug Mitman, a managinv director with Milwaukee investment banking firm “There is so much fear out therew that they’re reticent about making a big bet with theie cash.” Another deal-industry-killer is uncertainty about the economy and businesas performance. When a company’s owners are weighing whetherfto sell, they need two sets of positive fact to lure buyers, Emory said. The firsty is strong financial performance for the latest12 months. The seconx is a strong and reliabler business forecast for the next 12 Neither exists right now for most he said.
Due to the uncertainty, the valus of companies being sold showed the biggesft decline in 2008sincs 1985, which is the first year for which reliable data is said Howard Lanser, who is director of merger and acquisitions for Milwaukee-based & Co. Inc. So, how bad is it? Activith in 2008 dwindled to levels unseen since the lastrecessiom and, so far, 2009 is worsew than that, Baird’s Lanser said. During 2008, 3,0843 deals were announced nationally inthe “middle which covers deals with a value of $1 billion or less, according to a recent Baird report. That was the lowesf number of transactions in the past 14 and endeda five-yeat streak of escalating deal volumes, Bairxd said.
The last transaction Baird announced in southeasrt Wisconsin closedon Sept. 8, 2008, when West Bend-basedf manufacturer was acquired by itslargest shareholder, of for about $450 million. Baird closed 12 other deals betweem then and the endof 2008. Baird had announcef just three deals in 2009 througg the first weekof March. “There’s so much uncertaintyu right now in the Lanser said. “That’s the No. 1 enemy of M&A.” The bottojm line for Emory is that his firm is no longe swampedwith transactions, as it was a year ago. Now the dealw that are happening take longefto close, if they close at all, he Despite all the negative factors, some dealsw are getting done.
The most active buyers are companiess with strong balance sheets whose executives are seeking strategic acquisitions that will extend or rounr out their productsor services. Those buyere most likely are in industries that run tothe economy. They include food companies thatsupply grocers, some healtgh care and pharmaceuticals-related firms, technology firms related to productivity and companies that ply the downscale market such as low-incom housing and low-priced fast-food franchises. The good news for buyers is that prices are about half of what they were ayear ago.
But, for that very same the most-motivated sellers are companies in financial distressz that need to sell in a weak Rich Silverthorn, an attorney with in expects an uptick in “distressed M&A” as well as hostiled takeovers. The latter is more likely because depressed stockl prices are catching the attention of financiallyhealth buyers. “Although this is a horrific environmengfor M&A activity, I wouldn’t be surprise to see a couple hostilde bids come out,” Silverthorn said. “Stock prices are so low, buyersx can’t pass up at least looking.
” Silverthormn said he recently represented a compang that was considering a hostile acquisition ofa However, before his undisclosed client could make a bid, the targegt filed for Chapter 11 bankruptcy. As for when the deal markeg with improve, area experts expect to wait until atleastg 2010. The key will be for businessesx to regain predictability onthei outlook, said Mark an attorney with in Milwaukee. Any privately held businesa owner who was thinking of selliny might need to delay the process for anotheer two or three years to fetch an attractive saidMarty McLaughlin, an attorney with Reinhart Boernetr Van Deuren SC in Milwaukee.