Mid-Sized Firms Ready For a Pickup in Deals

The bulk of middle-market and private companies currently have their m&a plans on hold. But there are signals that some are looking past the slumping economy and tight capital markets and tentatively penciling deals into next year’s strategic game plans. Results of two recent surveys suggest that mid-sized firms may be scouting for opportunities to either buy or sell at an advantageous point during 2002. According to Fleet Capital Corp.’s annual survey of CFOs at 300 mid-sized manufacturing firms, 18% expect to be involved in mergers or acquisitions during 2002. And three-fifths of those with m&a expectations believe that they will be on the buy side. Although expressions of acquisition intentions by less than one in five respondents are hardly overwhelming, Fleet points out that the number represents a sharp increase from the 10% that registered dealmaking plans in the survey conducted in late 2000. That change indicates that mid-sized industrial firms already were feeling some pinch in late 2000 and were soft-pedaling external acquisition plans in advance of the general decline in the m&a market. Expected pricing trends may be stoking some buying sentiment. Fleet reports that 32% see no change in recent multiples of EBIT-DA for their industries and 33% look for a contraction – thereby projecting favorable prices from the buyer’s perspective. By contrast, in the late 2000 survey, only 8% looked for shrinkage of the multiple and 41% foresaw no change in the pricing prevailing at that time. The proportion expecting higher multiples dropped to 17% from 39% a year ago. Fleet’s results find that the highest tier of mid-market manufacturers should be the most active dealmakers. About a fifth of the largest companies in the sample – with sales of $200 million to $500 million – expect to do deals compared with 21% in the $25 million to $75 million rung. Thirty percent of public companies in the sample may be on the acquisition trail versus 11% of the private firms. Meanwhile, RBC Capital Markets reported the results of a survey conducted among 250 CEOs of privately owned technology firms that attended its conference in Dana Point, Calif., in early November. The findings indicated that this group is strongly considering m&a as a liquidity event. Better than two in five respondents – or 42% – said that their companies plan to merge or exit through acquisition over the next year. These types of companies were strong IPO candidates over the last several years. In the RBC survey, just over a third, 35%, said they planned to file for an IPO.