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 To describe the weeks we've just endured, Faegre & Benson LLP
partner Bruce Engler kicked off his law firm's annual M&A
conference in Minneapolis Wednesday with words such as "cataclysmic"
and phrases like "financial Armageddon." After the first panel
finished applying the state of the financial meltdown in general to the
state of the deal market in particular, Engler came back to the podium.
"That was even more depressing than my remarks," he marveled.
(OK, full disclosure. I was on that first doom-and-gloom panel. The Deal was a co-sponsor.)
For a full day, more than 300 piled into a downtown Minneapolis hotel ballroom and listened to speaker after speaker try to make sense out of the last several weeks as it applied to mergers and acquisitions. No way to sugarcoat this: It's really, really tough out there. Busted deals all over the place; lenders refusing to lend; buyers refusing to buy; sellers advised not to sell unless they absolutely must; distressed funds patiently waiting to pounce; a completely moribund IPO market. "The good news is that it's an equal opportunity financial crisis," quipped Nathaniel Ford, another Faegre & Benson partner. These days, added his colleague, W. Morgan Burns, "Almost all M&A is stressed or distressed in some form." Even strategic buyers with fat bank accounts are by and large waiting in the wings, panelists reported, and can't be counted on to take up the slack from the suddenly flaccid private equity contingent. To mix clichés, corporations prefer to keep their options open, their own houses in order and their powder dry. "The strategic buyer universe is actually shrinking," said Hugh Hoffman, managing director of Craig-Hallum Capital Group. That doesn't mean there are absolutely no deals, just very few, nothing big and none being done in any haste. "Companies with an option are not going to market right now," said Molly Joseph, director of corporate development for UnitedHealth Group Inc. Mark Copman, 3M Co.'s vice president for corporate development and mergers and acquisitions, said his company tends to do about 20 deals a year. So far, 3M has announced and closed 14 in 2008. And the company will continue looking. But then Copman added: "We question why anyone wants to get a deal done. It's hard to believe any company will be more expensive tomorrow than today." Very, very few talked about current dealflow as anything more than a trickle. One exception was Stephen Soderling, principal with the Minneapolis-based PE firm Tonka Bay Equity Partners LLC. "We're busier now than ever," he remarked, but added "we're largely insulated from market conditions." That's because his firm can afford to do deals with no debt. And that's because it is looking at companies in the low middle market, with $2 million to $6 million in Ebitda and sales of $10 million to $60 million. Most panelists agreed it's going to remain bad until well into next year before dealflow begins to resemble anything near normal. And even then, the speakers believe, deals will be not only less frenzied, but less levered than in the past. Michael McFadden, co-CEO of Lazard Middle Market LLC, for one, believes credit markets will "begin to loosen up" next year. "We will see a lot of distressed M&A in the first quarter, first half of 2009. Healthy M&A will come back in the second half of next year." And the rest of this year? "A disaster," he said. - Matt Miller Categories Deal Video
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