Number of Big Deals Drops in 2009

by Gwen Moritz  on Monday, Jan. 25, 2010 12:00 am  

The best news about mergers and acquisitions in 2009 is that it is now 2010.

Even excluding the back-to-back multibillion-dollar sales of Alltel Corp. - one announced in 2007 and the second in 2008 - the roster of large deals involving Arkansas companies or assets announced last year was anemic. The number of deals known or believed to be valued at $9 million or more went from 75 each in '07 and '08 to 58 in 2009.

(To see the list of the biggest deals of 2009, click here. A spreadsheet version is available here. For the list of Arkansas Development Finance Authority bond deals of 2009, click here.)

The drop in volume last year was significantly steeper than national figures, but trends do tend to arrive in Arkansas a bit late. The rest of the country saw M&A activity drop dramatically in 2008, while Arkansas companies were still wheeling and dealing. Over the past two years, though, deal-making in both the state and nation is off by more than 20 percent, according to running totals compiled by Factset Mergerstat LLC of Santa Monica, Calif.

And the size of the deals is also down. Only two on our new list reached the billion-dollar mark - and just barely. The largest was Windstream Corp. of Little Rock's $1.1 billion deal, announced in November, to purchase Iowa Telecommunications Services Inc. of Newton, Iowa. Next was a $1 billion bond issue by Wal-Mart Stores Inc., for which a billion dollars represents less than one day's total sales.

Marshall McKissack, managing director and head of mergers and acquisitions at Stephens Inc. of Little Rock, said a frozen credit market made it harder for acquisition-minded companies to buy last year and general economic conditions made selling less attractive. Owners and managers of well-run companies have been focused on basic business operations - especially when sales prices haven't been overly attractive.

"Valuations are down considerably from the beginning of 2008 and 2007. That has caused a lot of people to rethink selling," McKissack said last week. "Owners of businesses that have great business models and weren't levered, weren't burdened down with a lot of debt, they have the ability to continue to operate their businesses and wait for a better day."

That better day is coming, he said.

"Our expectation is that 2010 will be a better year," McKissack said. "People feel like they have averted the bottom of the crisis, and while I wouldn't say [credit] has returned to 2007 or [early] 2008 levels, banks are willing to lend a little bit more. That makes the ability to get a transaction done a little bit easier."

Willing bankers and improved prices will help lift the M&A phenomenon this year. But primarily, McKissack said, it's just time for business to get back to normal.

"There is a pent-up demand of folks wanting to think about transactions in 2010 because they haven't been able to think about it for the past 15 months. And from a strategic perspective, there are opportunities that strategic companies need to look at to achieve their objectives."

The pipeline of M&A business for Stephens Inc., which does business all over the country and internationally, has increased "substantially" during the past few months, McKissack said.

"Deals that would have been nice 18 months ago now seem more strategic," he said. "Maybe you didn't sell in 2007 and wished you had some liquidity during the crisis. Some of those people may take their chips off the table, diversifying their holdings so that it's not all wrapped up in one asset, their business."

 

 

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