Merger Activity Highest Since 2008, More Deals Predicted

Thursday, 04 Mar 2010 07:41 AM


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Bargains are hard to find among potential takeover targets, but a greater access to financing and a need for revenue growth should propel a pickup in mergers and acquisitions, private equity executives said.

Mergers and acquisitions of U.S. companies reached $106 billion in February, the highest monthly level since July 2008, according to Thomson Reuters. So far this year, M&A volume has totaled $144 billion, up 46 percent from the same period last year.

"In general there's more deal activity and more financing available," Garrett Moran, chief operating officer of Blackstone Group's private equity unit, said at the Reuters Private Equity and Hedge Funds Summit in New York this week.

Blackstone recently acquired theme park operator Busch Entertainment Corp, now known as SeaWorld Parks & Entertainment, and frozen foods maker Birds Eye Foods.

After a slow start to the year and weak deal volume in 2009, deal flow has recently become "more real. There's a very active pipeline of things that are going to happen," said Bain Capital Partners managing director Mark Nunnelly.

Companies have cut costs and restructured to withstand the recession, but now the push for revenue growth could lead to more dealmaking.

"I think we're seeing the beginning of a period of mergers and acquisitions where, rather than go into another refinancing cycle that may or may not yield a good outcome, you may see some marriages of convenience or necessity," said Fred Crawford, chief executive of AlixPartners LLP.

"In a sluggish economy where maintaining market share equals no growth, people are going to find they need to buy growth," Crawford said.

Meanwhile, lenders also have become more willing to provide deal funding, with leverage buyout deals averaging roughly $3 billion to $5 billion. Nunnelly said it would be possible for a bank syndicate to arrange funding for a deal "for the right company" in the range of $6 billion to $10 billion.

Still, Nunnelly said Bain would show restraint in making acquisitions because prices for certain assets have become frothy.

"Companies that are clean, neat, with apparent stability in our view have gotten reasonably priced to perfection," Nunnelly said.

Private equity firm THL Partners Co-President Scott Sperling echoed those comments, said the pipeline for new deals is picking up, but he stressed that he is strongly focused on not overpaying.

"We're still in a world where valuations are being pushed very high. In past recessionary periods, you would have expected valuations to becoming down," Sperling said.

THL Partners struck a $619 million deal last week to buy CKE
Restaurants, owner of the Hardee's and Carl's Jr. hamburger chains.

CKE said it would actively seek superior offers over the next 40 days, pushing its stock above the value of the THL offer.

Sperling declined to comment on CKE, but in general said the private equity sector needs to "be careful to not push pricing beyond that what makes sense," Sperling said.

© 2014 Thomson/Reuters. All rights reserved.

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