M&A market heating up

Board members should get in their summer holidays early. It's shaping up to be a busy second half

Heading into the year, forecasts from all the major law firms, accounting firms and bank economists seemed to agree on one thing—this would be the year that mergers-and-acquisitions activity, which cratered in late 2008 and 2009, makes a big comeback.
If the first part of the year is any indication, the rally is in progress but it will be the second half of 2010 before it really shows up in full.
“My sense is there’s quite a bit of stuff building up in the pipeline,” says Matthew Cockburn, a partner at Torys and co-leader of the firm’s M&A practice. “We’re certainly seeing a lot more activity among the people we work with, the private-equity funds and pension funds, in terms of looking at things. And the discussions they’re having with potential targets are getting a lot more traction than they did a year ago.”
Through early April, the busiest player on this front was the private-equity arm of the Ontario Teachers Pension Plan, which had closed five deals since the start of January. Those deals ranged from the purchase of Exal Group, an Ohio-based maker of aluminum cans, to the Camelot Group, operator of the UK National Lottery. On the strategic acquisitions front, there have been examples in different sectors, such as the Quadra Mining-FNX Mining merger in March, and software maker Open Text’s purchase of Montreal’s Nstein in February.
Cockburn says a resurgent economy has a lot to do with the pace of strategic M&A. “A year ago it was really difficult to predict how your company or the target company was going to perform over the next 12 months,” he says. “Now there’s a lot more comfort that as the economy improves, your ability to see forward is much better. I think that probably makes strategic buyers in particular more confident in their ability to properly price a deal.”
Statistics for the first quarter of 2010 showed that the number of M&A announcements were up about 25% from the same period in 2009, with a total of 221 announcements this year, up from 168 last year. On a dollar-value basis, however, the total is actually down in 2010 compared to 2009. This is not totally unexpected. Experts say that in this environment, companies tend to shy away from deals that could be deemed “transformative.” Few shareholders, boards or even executive teams are in the mood to bet the company on a big acquisition.

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