William Blair & Company Provide 2008 M&A Outlook

M&A Chicago had an opportunity to hear experts from William Blair & Company address a variety of issues in their recent “Market Trends 2008: Investment Banking Outlook” conference on Wednesday. The panel discussed major trends affecting public and private companies, including the credit crisis.

Mark G. Brady, Principal and head of Mergers & Acquisitions, said that 2007 middle market M&A volume finished near 2006 levels thanks to strong debt and equity markets through the first half of the year, increased corporate profits, net cash balances, and substantial private equity and hedge fund dollars.

“What we ran into last year was that hedge funds kind of departed from the historical strategy in M&A of providing parts of the capital structure and actually got into the private equity business, actually buying whole companies.”

According to Brady, total private capital raised in 2007 reached $234 billion, surpassing the record amounts raised in 2006 and doubling what was being raised in 1999. “There is a lot of capital out there that needs to be put to work,” Brady noted.

In the second half of 2007, however, debt markets experienced considerable volatility and skittishness, driven primarily by the woes in the sub-prime market. These conditions led to reduced liquidity – bank syndication and hedge funds – and effectively shut down the high yield market. The middle market is less affected by this, and transaction activity for deals under $500 million remains strong. “It has fallen off from the high months, but continues to bang along,” Brady said.

The weakening dollar and reduced competition from financial buyers has increased interest from strategics, especially foreign, according to Brady. “They feel like they can win and feel like they’re in the game.”

Brady indicated that of the seven or eight transactions he saw in December, four were strategic buyers outside of the United States. “Foreign strategic buyers are really the buyers of choice stepping up.”