Bob Filek, a partner with PricewaterhouseCoopers who's
talked to CD in the past, believes M&A in consolidating industries such as automotive, consumer products, energy, financial services, manufacturing, technology and retail will continue to fuel activity for the remainder of 2008. According to Filek, "in the current economy, companies are re-evaluating their business or portfolio to dispose of assets that aren't strategic or core. In particular, consumer product companies are shedding assets and disposing of non-performing brands. The retail industry is already in the process of selling distressed assets. If you look across all industry sectors, whether corporate or private equity, everybody is assessing their core competencies and doing transactions that make them lean, nimble and more competitive."
Expect to see inbound investments continue for the remainder of this year and to accelerate into 2009. "The U.S. is for sale. Our currency is deflated and that is attractive for international buyers. That said, inbound investments into the U.S. will be tempered due to the uncertainty of the U.S. economy. We will continue to see activity but it won't accelerate until the U.S. economic picture gains some clarity," stated Filek.
On the PE front, PwC partner Greg Peterson says the contracted lending environment continues to hamper financial acquirers, many of whom "have returned to their roots and are buying distressed and other assets." The number of U.S. businesses filing for bankruptcy totaled 8,713 for the first three months of 2008, the highest quarterly filing since the fourth quarter of 2005 and the highest first quarter since 2004 (American Bankruptcy Institute).
Peterson says transaction structures will change in the short term as private equity firms need to put in more equity to get desired deal financing terms. However, private equity firms are not pressured by their limited partners to spend capital raised as were during the last distressed cycle in 2001 and 2002. Peterson said "private equity is patient money. These firms do not have to make any rash moves. Expect to see more creative structures from private equity including partnering with strategic buyers for sector specific opportunities."
This piece was submitted by the transaction services group of PricewaterhouseCoopers.
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