A New Years Prediction
M&A will be alive and well in 2011.
As the Chairman and managing partner of a large middle market investment bank www.mcleanllc.com with offices in 31 cities in the US and Canada I suppose it is only natural that I get many requests to predict M&A market trends. So here is my answer for 2011.
Traditionally and depending on industry sectors M&A has accounted for 30% to about 60% of corporate business growth. This is especially true since we entered the technology age where business change occurs at light speed. Products change, business processes change, consumer shopping habits change (Google, web sites, internet, social media) and companies come and go, change or die.
Think of M&A as something like the ecology of a large pond with little fish being born every day, some of them surviving to become medium fish that in turn are being gobbled up by larger fish in search of the energy to grow even larger or at least not shrink… an almost perfect ecological food chain. Fish in the pond are going to be either oblivious, or aware of the rules of the pond but either way that is the pond they are in and the rules they live by.
Eco and M&A systems are both constantly going through short term adjustments to return to balance as new factors emerge from time to time. Think of telecom and dot com crashes, etc. at the beginning of this decade. M&A activity experiences typically 4 to 6 good years, lots of activity, higher valuations followed by 2 years or so of impaired activity and lower valuations. But it goes on… and on… and always will in an upwardly spiraling manner as the rate of change in modern life increases.
2011 will be no different and in fact should be, at least from all indications at the moment, a part of a continued upwards cycle that started in the early part of 2010. Larger commercial companies, if consumer spending remains mediocre, and Government contractors, if the government spending is reduced, will find it harder to grow organically and will seek ways to keep up their own energy by acquisition growth. The first wave of the boomer generation (likely owners of about two thirds of US middle market business) continues to march towards retirement and exhaustion and we will start seeing shortly a lot of middle market dispositions of those business. Technology is changing at warp speed and smaller facile companies are in fact technology R and D shops for larger companies who will acquire them for their technology. A weakening American dollar is certain spur more off shore acquisitions of US companies for a while. So the future looks bright for M&A regardless of whether these short term projections prove exactly accurate in terms of timing.
