MERGERS AND ACQUISITIONS | David Barnitt

Many companies are seeking growth capital.  A large percentage of them have major problems with their top line performance and saw their profitability drop in 2008.  There are a number of industries that private equity and mezzanine funds are still interested in funding into.  These include healthcare, telecom, food related, government contractors and other defensive businesses.  There is little to no appetite right now for company’s whose demand is consumer driven. Given the consumer pullback and the need to save more, there is no saying when the consumer spending will pick up again to historical levels.

Retail, real estate and building products are also not in favor.  Our view is that the retail consolidation underway will go on for many years and result in fewer stores and many vacant storefronts.  Many companies that struggled in 2008 need to raise more capital to reload their depleted working capital.  Most investors get that 2008 was a tough year and many of them having an understanding view.  If you were flat in 2008 – that is a great performance and is the “new up”. If you were down 5% to 10% – that is a good performance and you were the “new flat”.

Investors are preconditioned to expect 2008 and 2009 underperformance and are pricing that into their deals.  They understand that even really good companies cannot shine in a really bad economy. However, really good companies can still grow their market share, add new products and find new ways to position themselves for strong growth once the good economic days return.