Last year may have been bad for dealmakers, but 2009 is a new year with new opportunities. While the overall economic news remains dour, there are indications that the North American buyout market -- especially take-private transactions -- may recover in 2009 as private equity investors take advantage of low equity prices to make deals, the Toronto law firm Torys LLP has predicted.
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In its report "Top 10 Trends for 2009," the firm says the market will favor midmarket take-privates as credit constraints may make big buyouts difficult. The credit markets will also favor M&A buyers who have loaded up in cash.
"The shortage of credit will favour strategic buyers with strong balance sheets and sovereign wealth funds with greater access to financing," said the report. "Private equity will lean toward mid-market going-private transactions that contain more equity than in the past."
Torys is predicting more take-private deals in 2009 than in 2008 largely because a prolonged period of lower share prices will finally narrow the gap between what buyers and sellers consider reasonable value. The report envisages more hostile buyouts, and even those in which managers are participating in a hostile takeover against the wishes of their board.
Though credit markets continue to be tight, the law firm said credit in Canada is available for the midmarket, which includes many companies thought to be buyout targets.
The buyout market in Canada will also be driven by the prospect of income trusts, which are publicly traded Canadian corporations that do not pay income tax as long as they distribute profits to shareholders, losing their preferred tax status in January 2011. Many will opt to go private rather than exist as a listed company under the standard tax regime.
The report's other predictions for 2009 are:
- A buyer's market is emerging;
- Strategic investing will command favorable terms;
- Parties will focus on dispute resolution procedures and remedy provisions;
- Sellers will be more willing to negotiate on an exclusive basis;
- Infrastructure will continue to be a key sector;
- Using derivatives to acquire toeholds will face greater regulatory scrutiny;
- Sovereign wealth funds will rely on Santiago Principles (a regulatory framework package agreed to in October) to allay regulatory concerns;
- Distressed M&A will increase;
- And, foreign investment will undergo enhanced review in Canada.
- Peter Moreira
See PDF of the report
See The Deal magazine story: Not even a trickle
