Middle Market M&A Activity Expected to Remain Steady in 2008

Secured Lender, The, Mar/Apr 2008

ECONOMY

Credit market worries will continue to weigh on the U.S. Mergers & Acquisitions market through at the least the first half of 2008, especially with regard to large buyouts, according to a report recently released by the Piper Jaffray M&A team. The report titled, "Mergers & Acquisitions Insights: Middle Market M&A Outlook 2008," analyzes M&A activity and trends in the middle market.

Despite the credit crunch, the middle market has remained active as the total deal volume is only off 4% through the first nine months of 2007 compared to the same period in 2006. While Piper Jaffray believes M&A activity in 2008 will cool from the previous year, it will remain well above the recessionary levels seen in 2002 due to the strength of the global economy. The report indicates large deal activity will likely be the hardest hit, as the "mega-buyouts" will have difficulty securing financing in the first half of the year.

In addition, foreign buyers will play an increasing role as both sovereign funds and large foreign companies seek to take advantage of the weak dollar to expand their global capabilities. Domestic middlemarket M&A activity may weaken, due to overall economic instability and expanding holding periods by private equity investors. However, the impact will be much more muted in the middle-market than in the large cap market. Factors including increasingly diversified markets, the health of strategic acquirors and the private equity buy/sell cycle, have supported the growth in the M&A market over the past three years and should mute the potential slowdown in market activity, according to Piper Jaffray.

"Many companies and private equity firms have adopted a wait-and-see approach due to the volatility in the market," says Jeff Rosenkranz, managing director and head of M&A at Piper Jaffray. "As the market becomes more comfortable with the current economic environment and credit issues, we expect aslight rebound in M&A activity through the second half of 2008."

Overall, the report indicates the key to middle-market M&A activity in 2008 will be the health of the economy. Major economic and geopolitical questions that will affect the 2008 forecast include:

Housing: Will the subprime mortgage market continue to deteriorate, or will the government's plan to freeze rates halt the downfall?

Interest rates: Will the Federal Reserve continue to aggressively cut rates to support the economy or will inflationary conditions cause Fed officials to halt decreases, regardless of the effect on stocks?

Unemployment: Will employment levels continue to drive the U.S. economy and enable consumer spending to keep pace with historical levels?

Election-year performance:Will the U.S. economy continue its traditional strong election-year performance?

FOR MORE INFORMATION ON THE REPORT, GO TO WWW.PIPERJAFFRAY.COM.