58.9 F
San Diego
Tuesday, Mar 19, 2024
-Advertisement-

Burst of M&A Activity Signals Hope For Growth This Year

Squeezed credit markets put a damper on deal-making last year, but a few cash-strong companies were able to acquire their competitors at discount prices. Going forward, many of San Diego’s mergers and acquisitions advisers say they expect a healthy 2010 as the economy rebounds and lending institutions loosen their grip on loans.

“Our transaction size is probably down about 30 percent from where it was three years ago, but I would expect that would change looking at next year,” said Phil Currie, founder and managing partner with San Diego-based Shoreline Partners LLC, a middle market investment banking firm that handles sales of privately held companies with $5 million to $150 million in revenue, along with acquisitions for public companies.

San Diego companies are becoming more active as buyers rather than sellers in mergers and acquisitions deals, according to Jon Vance, an investment banker with Avondale Partners.

Last year’s economic environment made it mostly a buyer’s market, according to Currie.

“Many of the companies whose businesses are impacted by the economy no longer enjoy the lender benefits that they did prior,” he said. “Mergers are a great solution for companies not getting the financing that they need.”

But for some business owners, a battered economy hasn’t been reason enough to merge or sell their struggling businesses at a steep discount. Currie said he’s noticed this kind of refusal-to-budge mind-set during the past couple of years, ever since M&A activity fell from its peak levels in 2007, before the collapse of the financial markets.

“This has been exacerbated because many companies’ profitability and revenues have decreased because of the economic environment,” he said.

Lots of Action in Health Care

More than a few of the mergers and acquisitions happening today involve medical diagnostics and health care information technology management firms, according to Jon Vance, an investment banker in the Solana Beach office of Avondale Partners LLC. The firm specializes in advising public and private medical device and health care companies on their sale or acquisition.

“The health care space is generally pretty active right now,” he said.

Among some of the more recent deals, Vance pointed to acquisition San Diego-based hospital equipment supplier CareFusion Corp.’s Ontario, Calif.-based Medegen Inc., a maker of disposable systems for delivering medication intravenously, for $225 million in cash. The deal was announced April 5.

It marked the first acquisition by CareFusion, which became a publicly traded company in September 2009 after spinning off from health care giant Cardinal Health Inc.

“I was really surprised that when you boil down the activity in the last five months, it can really be characterized as San Diego companies as the buyer and not the seller, which was really not the case historically,” Vance said.

He said some of the larger health care IT companies with active acquisition strategies could drive more deals.

“They have the need to put cash to work, the need to supplement growth and they can’t cost-cut themselves to earnings anymore,” he said.

Strong Quarter for Deals

Already, industry data reports indicate a robust start to the year, which analysts said they expect to continue through the rest of 2010. For the first quarter this year, Charles Schwab Advisor Services tracked 24 M&A transactions among registered investment advisers with average assets under management of $842 million. The surge of activity made it the strongest first quarter on record in terms of deal volume since Schwab began tracking the data in 2003. Last year 19 deals were traced in the same quarter with average assets under management of $1.6 billion.

While the number of deals has risen, overall deal values have declined year-over-year. Since the beginning of the year through March 31, the 24 deals made industrywide had a total value of $19 billion.

Going forward, many of the M&A advisers interviewed for this report said they expect 2010 to go down as one of the strongest years on record.

“We expect a very strong fourth quarter,” said Currie of Shoreline Partners. “I would expect it would be the strongest quarter we’ve experienced in two years.”

That, he said, is good news to some of the business owners interested in a divestiture.

“Probably the future is looking much better to business owners,” he said.

-Advertisement-

Featured Articles

-Advertisement-
-Advertisement-

Related Articles

-Advertisement-
-Advertisement-
-Advertisement-