Private equity fundraising from 82 closed funds totaled only $41 Billion in the second quarter - the lowest level since 2003, according to the Private Equity Professional Digest. This is important news for strategic buyers because it continues to demonstrate that financial buyers will remain limited in their M&A activity - but that the clock is still ticking to take advantage of this environment

PE funds will have to do smaller deals or take less equity in order to make the most of their funds.  On the other hand, strategic investors with cash will have the upper hand and should be able to close more transactions – if they are willing to take action.

If a strategic firm will not make investments in their industry in this market, I question their resolve for the industry and also would ask the executives why their wouldn’t use their strong balance sheet in this depressed market?  With tongue firmly in cheek — are you waiting for prices to go up before buying?!

Technorati Tags: Acquisition Strategy, acquisitions, business acquisitions, Capstone, David Braun, External Growth, M&A, M&A News, private equity

Caterpillar announced it is acquiring Electro-Motive Diesel for $820 Million.  The company, which has revenues of about $1.8 billion is currently owned by two private equity firms who acquired it from General Motors in 2005 for around $200 million (read my other post about PE divesting before tax rates increase). Caterpillar already owns a railcar maintenance and repair business and this puts it into the manufacturing business (backward integration).

“This acquisition represents the latest step in our strategic plan to aggressively grow our presence in the global rail industry”  stated Doug Oberhelman, CEO-elect of Caterpillar.  They are betting on the US economy coming back with the demand for railcars to grow, as well as continued growth in emerging markets like India and China.  It seems to me Caterpillar is being market-driven and buying when the market it down (buy low/sell high).   Although GE is their major competitor in this space, I predict Caterpillar will do well with this investment.

Technorati Tags: Acquisition Strategy, acquisitions, business acquisitions, Capstone, Caterpillar, David Braun, External Growth, GE, M&A, M&A News, mergers, Mergers and Acquisitions, private equity

Tuesday’s Wall Street Journal had an article about how poorly large private equity deals have performed.   No wonder.  What value do they bring to the company?  Stripping off and selling key assets, re- re-leveraging the balance sheet.   How does this financial engineering grow or improve a company?

Well, maybe some financial discipline is needed.  But I stand by my philosophy of Strategy First - why are you buying the company in the first place and what are you going to do with it?  Seems to me with all these poorly performing PE deals, it is time for strategic companies to step in, buy them back and grow them.

Technorati Tags: Acquisition Strategy, acquisitions, business acquisitions, Capstone, David Braun, External Growth, M&A, M&A News, mergers, Mergers and Acquisitions, private equity

Cerberus Capital Management agreed to acquire DynCorp for $1 Billion on April 12.  DynCorp is a Virginia-based defense contractor who focuses on low-technology, high people-centric government contracts in hostile areas like Afghanistan.  Cerberus, probably best known for its acquisition of Chrysler, sees this as a way to expand its government business. There were four things that I found interesting about this acquisition:

• This takes a public company private which should provide savings, but also means it will likely go public again in a few years when Cerberus wants a liquidity event
• The deal is a leveraged buyout (LBO) and a big one.  The WSJ reports the structure will be 2/3 debt and 1/3 equity, which is much lower than the more recent levels of 50% equity.
• There is a “go-shop” clause.  This provision gives DynCorp a month to find a better deal, which should quash a shareholders suits that it wasn’t a fair price.
• This is essentially one private equity firm selling to another.  So this is financial engineering more than strategic fit.

All in all this deal is another sign of the thaw of the investment communities involvement in M&A deals.   I still contend there is about another 12 months of unique balance in the market between buyers and sellers and I still expect a frothy M&A market starting in mid-2011.

Technorati Tags: Acquisition Strategy, acquisitions, business acquisitions, Capstone, Cerebus, David Braun, DynCorp, External Growth, Integration, M&A, M&A News, mergers, Mergers and Acquisitions, private equity

The M&A statistics for the third quarter of 2009 are in and show the vast majority of the deals getting done are strategic.  The economic crisis and concerns over deal financing continued to significantly hold down the number and value of deals when compared to the same period last year.  Today, a Wall Street Journal article by Peter Lattman reports that leverage is out and equity is in.  Although these numbers are grim, there is reason for hope.  A number of big name deals, such as Kraft-Cadbury and Disney-Marvel, have injected the market with some much needed optimism.  These types of deals are evidence that strategic deals are going to lead the way to recovery with private equity to follow – not the other way around.

Technorati Tags: Acquisition Strategy, acquisitions, business acquisitions, Cadbury, Capstone, cash, David Braun, Disney, equity value, External Growth, Integration, Kraft, M&A, M&A News, Marvel, mergers, private equity

It seems that in the world of private equity, middle-market funds are enjoying the greatest success in this bleak deal-making landscape.  The main reason given:

…small and middle-market firms are getting the attention of the PE shops because they can be had without piling on gobs of debt

Right now, they are also considered a relative “bargain” in the marketplace.  Despite the uncertainty surrounding the economy, there are still deals to be had.  PE funds with cash and who deal with smaller to mid-size banks not burdened by the troubles of the larger institutions are see opportunity - and are pouncing.

Technorati Tags: Acquisition Strategy, acquisitions, capital markets, Capstone, David Braun, External Growth, M&A, Mergers and Acquisitions, private equity

If you look at the divide in the M&A market, the growth you will see is in strategic acquisitions — either very large or very small. Where we can expect the least amount of activity is what I call the wedge: $1B to $10B transactions. This market sector is inherently ripe for private equity. It tends to be less strategic, much more financial, because in today’s environment transactions on this scale are an odd size — they’re not huge but they’re by no means mom and pop.  Historically, the private equity players in the financial world would acquire a company in that category and build on it as a platform. They would make a $7 billion acquisition and use it as a platform to build around, creating a bigger company that they can take public or sell to a strategic buyer through a private transaction.

But of course, not much of that is happening right now. The private equity folks are sitting on the bench for one simple reason: credit. This middle sector — the wedge — is where the credit situation is felt most strongly. So this is where you’re not going to see much growth.

Technorati Tags: Acquisition Strategy, capital markets, External Growth, m-and-a, Mergers and Acquisitions, private equity