Mergers and Acquisitions Market Update
Excerpts from a Conversation with Jim Murphy, Partner of de Visscher & Co.
By Jim Murphy
Corporate Finance and Mergers and Acquisitions
have been scarce over the past few years.Why are you expecting more activity
in the coming year?
"For the past two years the combination of a recessionary economy, the
uncertainty caused by the war in Iraq, and a cautionary senior debt banking
environment, has resulted in a depressed level of financing and merger
and acquisition activity. In the fourth quarter of 2003, however, we witnessed
a resurgence of interest in family owned companies raising capital for
their businesses. It has been more than two years since the September
11th tragedy and the stock market rebounded in 2003, finishing up 28%.
In addition, with the turning of the calendar into 2004, lenders begin
the year with new quotas and increased enthusiasm to put some money to
work in an improving economy. As a result we are seeing increased interest
on the part of commercial banks in lending money at higher multiples of
cash flow. Economic statistics are improving and capital gains tax rates
have been lowered. All of these factors provide comfort to the family
business owner that accessing capital or refinancing the business for
growth or cash liquidity is not too risky an initiative, particularly
during an election year when spirits are high."
Do you expect business valuations
to go up?
"Business valuations are already starting to rise. Many quality companies
have been out of the capital raising market for 18 months or more. They
have pent up growth capital needs for worthwhile projects and some companies
have shareholders with overdue liquidity needs. These companies are coming
to the capital markets at a time when corporations (strategic partners
or buyers) have retrenched to the point of being cash rich again and financial
investors (private equity funds) have sizable uninvested funds (over $75
billion) and a shorter remaining investment period in which to put that
capital to use. Quality, established companies with good market franchises
and value propositions are in high demand in this market and investors
are willing to pay up for the right opportunities."
What are you advising your family
business clients to do in this environment?
"Most family businesses have been managed judiciously and have opportunities
they have not taken advantage of in the past few years. We think the overall
current environment has all the characteristics to support more aggressive
growth and risk taking. If the strategic plan is well thought out and
in place, and the shareholders have been well educated and informed, then
the current market presents an excellent opportunity to build shareholder
value and family wealth. It seems that the bigger risk, at this juncture,
is in being too cautious rather than being too bold."
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