After the declines seen through the Great Recession, mergers and acquisition activity in the U.S. is set for at least a moderate rebound in 2010, according to Robert W. Baird & Co.’s 2010 Market Analysis.
Recent stock market performance, renewed strength in the credit markets, rising investor and CEO confidence, and increasing valuations will contribute to an increase in M&A activity, the report states. Increases will be tempered by a choppy economic environment, continuing high levels of bankruptcies, restructurings and corporate scandals, as well as the tumultuous political landscape and volatility in international relations.
“The rapidly improving credit markets and an increase in CEO confidence could be the catalysts needed for a robust M&A environment that could resemble 2004 – the last time we came out of a recession,” the Baird report states. “However, the M&A market in 2010 will go the way the economy goes: any hint of a double-dip recession could roil the credit markets, and M&A activity would in turn dry up as fast it sprouted up.”
The report identifies four drivers in the middle market for 2010. They are:
Strategic buyers. Many corporations looking for significant growth in 2010 are likely to do so through acquisitions. Healthy corporations will have easier access to lending and many have large cash reserves available for buyouts, the report says.
Private equity. 2009 saw some of the lowest levels of private equity acquisitions in decades, and Baird believes equity investors will return to the table in 2010 as both buyers as sellers. Some equity groups will continue to struggle with portfolio performance, however.
Credit markets. Some lenders have shown an increased appetite for leveraged buyouts, which has made it easier to fund M&A deals, the report says, including those in the middle market.
The economy. If economic conditions worsen, there could be a return to the sluggish M&A marketplace of 2009, the report states.
To read the full Baird report, click here.
