Nixon Peabody Survey Examines M&A Activity During the Credit Crunch
Monday April 21, 9:24 am ET
Private Equity and Strategic Buyers Split on Effect of Market Turmoil on Business Transactions
NEW YORK, April 21 /PRNewswire/ -- Reflecting differing perceptions of the impact of the credit crunch, strategic buyers appear to be more bullish on the outlook for the mergers and acquisitions market than their private equity counterparts, according to M&A Executive Insights 2008, a survey recently commissioned by international law firm Nixon Peabody LLP.
The survey of senior Fortune 500 executives and private equity practitioners confirms the effect the slowing credit market had on M&A deals during the second half of 2007, when only $479.2 billion of deals were completed compared to the $846.8 billion completed in Q1 and Q2. Key findings of the survey include:
-- Despite the drop in deals and continuing market instability, more than
50 percent of executives surveyed plan to engage in M&A activity over
the next twelve months
-- Strategic buyers were more optimistic than private equity buyers about
the impact of current market volatility on the M&A environment, with
51 percent of strategic respondents believing that worsening market
conditions would serve as a catalyst for an increase in M&A deals
-- Mid-market deals under $500 million are expected to dominate M&A deal
size over the next 12 months, with technology and financial services
the most active sectors for dealmaking
-- Reflecting the apparent pullback by private equity, 78 percent of
executives believe that the number of strategic deals will surpass
private equity deals in 2008 as a result of the tightening of the
credit markets
-- More than three quarters of executives also expect private equity bid
premiums to fall between 10-25 percent while half expect the premiums
on bids by strategic buyers to fall by that amount
As a barometer of market uncertainty and volatility, the survey also looked at trends in material adverse change clauses (MACs) as a follow-up to Nixon Peabody's 6th annual MAC survey released last fall. The results suggest that corporate executives and private equity practitioners experienced and responded to the credit crunch differently. More than 90 percent of private equity practitioners inserted additional MAC clauses due to the turmoil in the credit markets, while only 35 percent of corporate executives added clauses for this reason.
"The survey clearly indicates a more challenging and uncertain M&A environment, with deal sizes expected to drop and disagreement over whether more attractive valuations can offset the effect of tighter credit in terms of deal volume," said Philip B. Taub, chair of Nixon Peabody's Private Company Transactions practice. "Market turmoil has led to greater caution, as reflected in the trend toward buyers, especially on the private equity side, expecting to add more MAC clauses while sellers seek more exceptions to MAC clauses."
"After several years where private equity buyers seemed to dominate the M&A landscape, the credit crunch appears to have shifted the playing field, at least temporarily, toward strategic buyers," said Dominick DeChiara, chair of Nixon Peabody's Private Equity practice. "Private equity buyers are certainly not sitting on the sidelines, but they are expecting smaller and perhaps fewer deals and seeking more assurances, in the form of MAC clauses and more favorable deal terms. At this point, the expectations of strategic buyers appear to have been less impacted by the fallout from the credit crunch."
The survey was conducted by mergermarket and polled more than 100 Fortune 500 executives and private equity practitioners.
About Nixon Peabody
Nixon Peabody LLP is one of the largest law firms in the United States and is recognized by American Lawyer Media as a "Global 100" firm with 700 attorneys collaborating across 25 major practice areas in 18 office locations. Nixon Peabody's Private Equity practice group is one of the most active in the country. The team includes more than 65 attorneys who provide strategic advice and legal counsel to private equity, distressed and venture capital funds, hedge funds, portfolio companies and institutional investors. In the most recently released Dow Jones & Company Private Equity Analyst survey, Nixon Peabody ranked 3rd in the number of private equity and venture capital funds negotiated or structured on behalf of general and limited partners, and 19th in the number of private equity and venture capital deals closed.
Nixon Peabody is also a leading advisor to public and private companies on a broad scope of corporate transactions. The results-oriented team is focused on making transactions fast, smooth, and cost efficient and takes an integrated, cross-disciplinary approach, which spans practices from tax, securities, and employment to real estate, intellectual property, environmental, and other regulatory fields.
About mergermarket
mergermarket, part of The Mergermarket Group, is an unparalleled, independent M&A intelligence tool used by the world's foremost financial institutions to originate deals. It provides proprietary intelligence on potential deal flow, potential mandates and valuations via the world's largest group of M&A journalists and analysts who have direct access to the most senior decision-makers and corporates. Mergermarket Group has over 450 employees worldwide and regional head offices in New York, London and Hong Kong. Visit us at www.mergermarket.com.
The Mergermarket Group is a division of the Financial Times Group, publisher of the Financial Times newspaper and FT.com. The FT Group is a division of Pearson plc, the international media group.
Contacts: Brian Moynihan Stephanie Edel
Nixon Peabody LLP Hill & Knowlton
bmoynihan@nixonpeabody.com stephanie.edel@hillandknowlton.com
617-345-1064 212-885-0307
Source: Nixon Peabody LLP
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