A new report by R.W. Baird & Co. Inc.’s Investment Banking group, says that middle-market M&A activity should fare better than the overall market. In its "2008 Middle-Market M&A Outlook," Baird’s analysts say that while a drop in leveraged buyout (LBO) activity will affect the market overall, the return of strategic buyers, record amounts of cash raised by private equity, an increase in global activity and a healthy level of consolidation in specific industries will provide a base for solid activity.
The economy, however, will remain the key variable in determining overall deal numbers, Baird said.
Middle-market deals of less than $1 billion require less debt financing and should be more constant this year, the report said. Multi-billion dollar buyouts will be pressured by credit constraints, the report stated.
Certain industries such as materials, technology, energy, telecom and business process outsourcing will benefit with current M&A market conditions, the report stated. Those industries are global, export-driven and have limited exposure to the housing and financial markets.
Private equity groups will be active during 2008, but not to the same level they have been in recent years, the report says. However, strategic buyers will help maintain the M&A marketplace.
"With the realization that industry and financial conditions require companies to be bigger and compete more effectively, particularly in an increasingly global economy, many will recognize that the current M&A market environment provides opportunities," said Steven Bernard, director of M&A market analysis for Baird and author of the report. "Corporations will likely continue to take advantage of the current window to sell to industry consolidators that have greater resources to compete effectively."
