Will PE Firms be Sellers in 2012? Insights from Corporate Development Teleconference

As a service to our Members, Axial organizes conversations with experts in the private capital markets. We focus on connecting the right people with the right topics to create conversations that have a direct impact on the way you run deals and approach the markets.

Two weeks ago we had an invitation-only conference call with Axial members Steven Brown, Head of Corporate Development at Standex (NYSE: SXI), and Ramsey Goodrich, Managing Director at Carter Morse & Mathias. They covered major topics in corporate development for the coming year, focusing particularly on the changes that will have the largest direct effects on corporations looking to make acquisitions. Below are a few of their thoughts from the conference call.

Steve Brown, Standex Corporation: The M&A market in 2012 will be fairly strong with a lot of quality opportunities being available. The two major driving forces, corporations and private equity groups, both have reasons to be in the market this year.

Corporations are looking to grow both their top and bottom lines this year faster than any organic growth that they might have experienced during 2011. Their best bet to grow significantly is to pursue strategic acquisitions that allow them to realize the synergies on the deals and thereby improve their top and bottom lines.

Many private equity groups have been sitting on good portfolio businesses longer than their anticipated holding period and now want to exit those holdings as deal multiples rise again. Other equity groups have plenty of uninvested capital to deploy and want to invest that capital rather than merely returning it to investors. It is also worth noting that equity groups presently have numerous bank financing options available to them to fund the quality deals being brought to market.

Ramsey Goodrich, Carter Morse & Mathias: The general consensus for Corporate Development Officers (CDOs) is to expect a vibrant market in 2012, both from privately owned sellers and from private equity sellers. Private equity is always ahead of the curve in selling companies, so we’ll definitely see an active market from PE groups selling their portfolio companies. Business owners are usually about 12-18 months behind the economy, meaning that their current thought process is about even with where the economy was a year or year and a half ago. They should catch up quickly though, so CDOs need to get ready for a good acquisition year.

The rest of the conversation covered topics like the interactions between private equity and corporate development, valuations in the coming year, and looking abroad for opportunities:

• Brown: “Don’t expect to get the deal of the century, as quality companies are going to get quality multiples during 2012.”
• Goodrich: “CDOs must look at private equity as a complementary partner when buying their portfolio companies, but they should view them as very competitive going forward in the rest of the market.”
• Brown: “Much of the buying in the BRIC countries during 2012 will not be for relocation but rather to diversify holdings to take advantage of those robust local economies that are growing faster than the U.S. economy.”
• Goodrich: “Investment bankers are the leading indicators for the deal market and we’re busier than we’ve been in years.”

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