Signs of increased M&A activity are encouraging for 2010: acquisitions and lending should gradually climb during 2010 barring a major economic glitch.

Author:Oppenheimer, Charles K.
Position::Outlook
 
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What is the market for mergers and acquisitions for 2010? Better than last year but a long way from three years ago. I see many good signs of increased activity and increased lending for acquisitions. Acquisitions and lending should gradually climb during 2010 barring a major economic glitch.

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Private Equity: Like last year private equity groups are still sitting on billions of dollars and several new equity groups have been formed. Acquisitions by private equity groups will be up in 2010 as long as they can find willing sellers with companies in relatively good shape and growing. We will also see more exits of portfolio companies from private equity groups this year as their performance continues to increase. I expected to see more recapitalizations last year but that didn't happen and probably will not this year either.

Strategic Acquisitions: Corporate acquisitions have picked up and should continue to grow as profits increase and with more availability of capital. It can be a good time to pick up market share by acquiring weaker competitors or expand by acquiring complementary businesses.

Foreign Buyers: Foreign buyers are increasingly looking at US companies but they tend to have more interest in real estate. When it comes to companies, they are looking to the Unites States because it is expected to recover faster and earlier than Europe. Asian buyers of US companies are inconsistent. Foreign companies with US holdings are more likely to be the biggest sector of foreign buyers adding to existing companies.

Financing: Financing availability is much better now and corporations are now aggressively borrowing in the debt markets once again. This will provide financing for more strategic acquisitions. Financing is definitely not going to be as difficult this year as it was last year. Bank covenants have eased somewhat but banks continue to be cautious. This is not to say lending is fast and furious--far from it. Many banks are still working to shore up their own capital. But good transactions will get done and some industries will continue to be taboo, such as the automotive industry.

Smaller and Regional Banks...

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