How hot has the mergers and acquisitions business been in the state lately? Some would say you can chart the industry through its relationship with tourism and leisure — or lack thereof.
At least, that’s the backhanded way Bob Anderson, chair of the Mergers and Acquisitions Group at Lindabury, McCormick, Estabrook & Cooper P.C., looks at it.
“I went nine straight months without a vacation day, because there was just one thing after another coming through the door,” he said. “Starting last summer through today, those months have probably been my busiest of the past 30 years.”
But New Jersey’s M&A professionals can’t feel too bad about it; they’re all experiencing a much-needed break from the Great Recession’s long-lasting slowdown of deals.
Buoyed by an economic bounceback, private equity’s capital flow and foreign buyers, interest in mergers and acquisitions continues to rise for local firms facilitating these deals. It’s a high-water mark that comes with excitement as well as concern, because the tide may soon turn back.
For the time being, Alan Scharfstein, CEO of the DAK Group, said his advisory firm is as active as it has ever been.
“We had one period in which we did five deals in seven weeks, which is crazy for us,” he said. “We’re seeing record levels of activity. And they were all terrific transactions, what I’d call high valuations.”
Because he works off a pipeline of future deals that often have enormous lead time prior to being closed, Scharfstein said his firm has a good idea of what’s to come — at least in the short term.
Based on that, his forecast is that this year will be a strong one for mergers and acquisitions, and next year will start off similarly robust. Beyond that, he doesn’t have much certainty.
That uncertainty in itself has become a driver for many middle-market business owners on the seller side of transactions.
“These business owners have started to worry about how long the great deals are going to continue, and that’s driving a lot of their interest in M&A activity,” Scharfstein said. “They don’t want to miss the train; they’re afraid it’s leaving the station.”
Despite reaching a seeming top-dollar peak of valuations today, buyers still believe their greatest potential growth will come through acquisitions of at least a high enough level to gain partnerships. Private equity firms are also more eager than ever to bolster portfolios with new acquisitions.
That has been a boon for baby boomer business owners, who had their plans for retirement put on hold somewhat by the past decade’s period of economic downturn. People overseeing today’s transactions are citing retirement as an increasingly common motivator for sellers.
“Business owners’ desire to retire is definitely a factor,” Scharfstein said, who added that his firm also had “a great deal of younger business sellers, not yet near retirement age, selling because they see it as the perfect time for it.”
Business owners face the decision of whether to sell the whole business, or part of it to take some money off the table and capture the upside of a good market for sellers. Younger business owners are often hedging their bets with the latter option, M&A experts say.
Just as the profile of today’s business seller varies, so do the industries involved in the uptick of transactions. Jeffrey Cassin, counsel at Scarinci Hollenbeck, said there are a lot of sectors that are experiencing the present flurry of mergers and acquisitions.
“But the buzz is that technology is going to be driving M&A for the balance of the year,” he said. “It’s already happening, with companies buying up tech tools that augment existing products.”
Cassin said there’s a growing interest — mostly among large corporations — in making acquisitions to add digital service lines, such as purchasing a smaller company for its proprietary software solution.
“These are different kinds of transactions than a traditional merger of equals, because these startups tend not to be offering existing revenues or business lines, but, rather, the ability to augment the acquirer’s assets,” Cassin said.
Daniel Everingham, owner at Everingham & Kerr Inc., cites that trend as a factor in the banner year his Mount Laurel-based M&A advisory firm is headed toward.
He added that it’s not limited to the local tech sector, providing as an example one of his recent deals: a mouse breeding company that had a multibillion-dollar corporation buy it to expand its own internal research capabilities.
“Certain industries are truly explosive and growing, but, at the same time, there’s just no industry that has been left behind,” Everingham said. “Everyone is getting in on deals today.”
Going global … isn’t always easy
Some local mergers and acquisitions advisory firms, such as the DAK Group, are dealing with buyers outside the United States in about half of the transactions they are doing today.
But, despite the tremendous interest in local markets by foreign entities, it’s not always easy to make these deals work.
Daniel Everingham of Everingham & Kerr Inc. fields calls from interested parties abroad. But only a handful of the 500-some deals he has been involved with have been successful cross-border transactions.
“In the lower middle market segment, the transactions are often too small for foreign buyers,” he said. “Also, (the U.S.) is the most optimistic country in the world, and the country’s buyers tend to pay more, from our experience. I think it’s because people have the perception that America means lawyers; so, even when they make the most sense as buyers, they don’t always give the best offer.”
Everingham referenced a transaction involving negotiations with a German company. That company, which was told it didn’t have a high enough offer to acquire another company, lost out to a bid from a stateside private equity group. The company later regretted it.
“Part of it is it seemed like they didn’t believe us; there seemed to be a communication or cultural barrier,” he said. “So that can be a serious obstacle, too.”
Reach Bob Anderson of Lindabury, McCormick, Estabrook & Cooper at: firstname.lastname@example.org or 908-233-6800.
Reach Jeffrey Cassin of Scarinci Hollenbeck at: email@example.com or 201-896-4100.
Reach Alan Scharfstein of the DAK Group at: firstname.lastname@example.org or (201) 478-5275.
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- The impact of tariffs: Advisers fear one casualty of a trade war will be thriving market for mergers