A. No. Personally, I think the banks got out of the lending business for two or three years there. They had a lot of problems with loans, the government was looking over their shoulders, and basically they stopped lending money. That created an opportunity for a company like ours to raise debt and equity funds for a lot of small and medium-size businesses. But the banks are coming back now. Their earnings are better. They've cleared up the loan problems. They now are becoming more aggressive, and they're making more capital available for acquisitions. There's more competition. We've seen that in the last three to four months.
Q. How are the buyers changing from the 1980s?
A. The corporations cleaned up their balance sheets, restructured their operations, improved their earnings. Now they are really going back to basics. They're divesting themselves of divisions that don't fit their core business--you have (hospital supplier) Baxter International that's now talking about a half-dozen divisions that it's spinning off--and they are looking more toward vertical integration--"Tend to our knitting." A corporate buyer is going to look for an add-on product or technology. They're not usually buying it for the management team. Private investment groups are looking for $10 million to $20 million in sales, profitability and good management that will remain.
Q. Is anyone else looking for good deals?
A. Now you've got a third element that's just starting to make a play again. With the lower value of the U.S. dollar, we're seeing foreign buyers once again. For about the last six months, we've seen heavy groups of United Kingdom and Swiss buyers.
Q. What's the profile of a target company?
A. Companies with sales of $10 million and above, usually with pretax earnings of $1.5-million-plus, and some growth to the industry. Now when they fit in particular industries the buyers are in, they are more attractive. For instance, we're involved with a large company that makes ceiling fans and does about $70 million in sales. They manufacture offshore about 110 different types of fans. There's a lot of interest from buyers in adding on consumer products.
Q. What's the main reason owners of private companies want to sell?
A. When we analyze surveys of probably thousands of business owners over the last 12 years, we keep coming back to the number one reason: burnout and boredom. The average entrepreneur owning a business on the order of between 12 and 17 years, somewhere between the age of 52 and 65, they get to a point where it doesn't hold the same romance for them. The second reason would be financial considerations. The third may be health. Burnout is still an overriding factor.
Q. So will we end up with another M&A feeding frenzy?
A. Well, we're seeing prices going up, we're seeing money come in, we're seeing people looking for deals. It's a wonderful business to be in again. I think that there may be some lessons learned from the '80s. One is that leverage can be a real double-edged sword. So there is more equity being required now. There's more buying for the right reasons, more synergism. I feel there is more discipline and more thoughtfulness for the marketplace today than what we saw in the '80s.
Q. Fidelity National has a unfriendly bid pending for US Facilities. Will there be a resurgence of hostile attempts?
A. I haven't seen that, at least nothing close to what it was in the 1980s. I think it's too costly. Also, companies don't want to risk an image problem in getting involved with that. Maybe we're a gentler, kinder group. I think the times are different. You can just sense that there is more of a professional purpose driving mergers and acquisitions today.
Q. How long is this M&A market likely to continue?
A. I think it'll continue as long as the money stays available, as long as corporate earnings hold up, as long as there's renewed optimism in the economy. And I see it for a couple of years at a minimum.
The amount of investment money raised from pension funds, corporate funds and wealthy individuals rose 63% in the first six months this year from the same period of 1993. The amount raised and where it went, in millions:
1993 1994 Amount Amount % raised raised change Acquisitions $2,249 $5,689 153% Second-level financing 454 423 -7 Venture capital 1,304 1,706 31 Other 823 63 -92 Total $4,830 7,881 63%
Source: The Private Equity Analyst