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    By Joe Berkery

    M&A transaction value and volume are returning to pre-recession levels, according to the latest Berkery Noyes research. The total number of transactions (volume) for the six months to October 21, 2011 was 1,163, higher than the previous peak of 1,070 recorded for the six months prior to April 21, 2007, reflecting strong interest from both buyers and sellers. Fewer deals at the larger end of the spectrum drove down aggregate deal values, reflecting the greater concentration of activity among smaller and mid-sized companies in the $25 million to $200 million range.

    Enterprise values were determined to be 1.9 X revenues, with multiples of EBITDA (earnings before interest, tax, depreciation and amortization) at 12.3 X. Though this is below the market peak during mid-2007, the uptred is both clear and significant.   




    By Joe Berkery

    The first three quarters of 2011 have been busy for Berkery Noyes, with 15 transactions closed during the period and several more scheduled to close during the fourth quarter. What’s remarkable about these transactions is the high level of buyer interest and strong valuations each one has received. Despite uncertainty in the wider economy, M&A activity is on track to equal or exceed the pace established during the pre-recession boom.

    The brisk pace of M&A is apparent across most of the segments we cover, including the information, software, media, entertainment, technology, finance, healthcare, and education industries. For information about these transactions, visit the recent transactions section of our website.

    The increase in transaction volume has prompted Berkery Noyes to expand its investment banking capacity. During the past year we have added three new managing directors, along with additional team members at the vice president and associate/ analyst levels to support them. We expect the elevated pace of transactions to continue at least through the next 14 months as corporate and financial buyers look to deploy abundant cash reserves through acquisitions, and as sellers act ahead of changes in the tax code which may drive up the cost of a sale after 2013 (mentioned in the previous post).



    By Joe Berkery

    Changes in tax policy now under discussion are likely to create an incentive for owners to sell privately held businesses sooner rather than later. While it’s difficult to predict with certainty where the current debate on fiscal policy will end up, an increase in the capital gains tax from the current 15% level is looking more likely for the 2013 tax year. As a result, many shareholders in privately owned companies are looking to consummate a sale in the next 12 to 15 months.

    Another change in the tax code, this one related to the new healthcare legislation passed last year, will increase the tax on unearned income by 3.8% for individuals earning more than $200,000 and married couples earning more than $250,000. Taken together, the increase in potential tax liability on gains from the sale of assets could drive the cost of a sale much higher after January 1, 2013. Sellers who are considering a sale of their business for purposes of increasing liquidity or estate planning are advised to act now to initiate a transaction, as these deals typically take six months to close.



    Berkery Noyes has released its Third Quarter 2011 Trend Reports. We’ve listed some commentary from our managing directors here.

    Media & Marketing Services Industry:

    “Interestingly, DPZ was Publicis Groupe’s third acquisition this year in Brazil,” said Berkery Noyes Managing Director Evan Klein. “As one of the top ten ad markets in the world, I have to think Brazil will continue to garner interest from advertising agencies in the near term."

    Software Industry:

    “While Hewlett Packard’s offer for Autonomy Corporation PLC highlighted the attractive e-discovery sector, there has been a long history of acquisitions at high transaction multiples in the sector,” said Berkery Noyes Managing Director Mary Jo Zandy. “This historical trend is expected to be accentuated in the next twenty-four months as the consolidation in the high growth e-discovery market continues. Many of the smaller privately-held companies, some with cloud technologies, are attractive acquisitions for the existing large players and potential new entries.”

    Online & Mobile Industry:

    Regarding companies that operate in the mobile and online space tracked by Berkery Noyes, Managing Director Kathleen Thomas notes, “Google made 26 acquisitions in 2010, so with 21 acquisitions through the third quarter, 2011 looks to be another strong year for the industry giant. Overall transaction volume and EBITDA multiples are up significantly from 2010.”

    Financial Technology & Information Industry:

    “The increase in the number of closed transactions in the third quarter is a direct result of an increasingly more active private equity market, overall pent-up supply of companies wishing to sell, and a strategic buyer market that continues to shore-up product suites and customer bases through acquisitions,” said Managing Director John Guzzo.

    Pharma and Healthcare Information and Technology Industry:

    PerkinElmer has demonstrated the vast potential for informatics and software integration into laboratory environments,” said managing director Jeffrey Smith. "The need to integrate scientific tools, effectively manage knowledge, and organize workflow within laboratory settings is becoming even more crucial for clients of organizations such as PerkinElmer."

    Education Industry:

    “M&A volume started to look up during the third quarter when a number of large deals were announced,” said John Shea, managing partner at Berkery Noyes. Hellman & Friedman’s announced plans to acquire SunGard Data Systems' higher education segment and Providence Equity’s acquisition of Blackboard are greater in value than what’s been done in the entire first half. These transactions highlight the innovation that digital technologies are bringing to both the K-12 sector as well as institutions of higher education.”

    Private Equity in the Information Industry:

    “Notably, two of Thomas H. Lee Partners’ third quarter transactions were related to healthcare. Ignite Health, whose ultimate parent is THL, and Intermedix, which is a consumer and healthcare subsidiary of THL, both made acquisitions. Private equity activity in healthcare technology is likely to be strong going into the near future, as evidenced by Blackstone’s acquisition of Emdeon and Vista Equity Partners’ acquisition of Sage Software in the third quarter,” said managing director Tom O’Connor.

    Information Industry:

    “It’s an encouraging sign that transaction volume in the Information Industry, examined on a quarterly basis, remains well above its 2010 levels. There has been a consistent trend upward for median EBITDA and revenue multiples too,” said CIO James Berkery. “Indeed, both multiples showed improvement for the third consecutive quarter.”




     By Joe Berkery

    Right now there is a substantial disconnect between the health of the U.S. economy and overall corporate well being.

    Even as economic growth slows and markets fluctuate, corporate profits are relatively strong, balance sheets are brimming with cash and the appetite for acquisitions has improved.

    So far this year, our firm has closed a dozen transactions--four in just the past 30 days--and we expect another five or six to close by year-end, making 2011 a good year for middle-market M&A.

    Perhaps an even better gauge of the health of the M&A market is not the number of actual closings, but the number of potential buyers who are participating in the auction process.  Virtually all of the deals we have managed this year involved multiple qualified buyers, representing both strategic players and private equity investors.

    While we anticipate no further loosening of the credit markets, debt is nonetheless available to companies with strong fundamentals and solid numbers. But with so much investable cash on their balance sheets, most of the deals we've done this year were for cash.

    The pick-up in M&A activity is often a leading indicator of improvement in the wider economy. Businesses that shed employees and reduced costs while maintaining productivity are more profitable and thus adding to their stockpiles of cash--now estimated at a record $1.84 trillion on corporate balance sheets. And now they're putting some of that cash to work in the form of acquisitions. 

    Another factor fueling the upturn in M&A is the move by many larger strategics to realign their businesses by shedding non-core assets. We're seeing major players considering or completing divestitures of operating units or entire divisions. 

    We expect these trends to hold well into 2012, with sellers receiving excellent multiples for quality assets as buyers, both strategic and financial look to deploy their idle, low-interest-earning cash.

    Sellers who view the erratic stock market and weak economy as reasons to stay on the sidelines may be missing an opportunity to capitalize on a strong M&A market. While fear may be a reasonable reaction to the policy paralysis in Washington, it's not a reason to postpone a sale of a business to eager buyers flush with cash and willing to pay good multiples. Whatever the direction of the overall economy in the short term, the current M&A market is as good as it's going to be for a while.

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