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?
JM: "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?
JM: "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?
JM: "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."