Middle-Market M&A Review and Outlook April 2010 Benning Associates LLC 101 Federal Street - Suite 1900 Boston, MA 02110 ww...
<ul><li>Technology has changed investment banking  </li></ul><ul><ul><li>We can do so much more with so much less </li></u...
Our team is a re-united group of successful investment bankers poised to serve a market requiring close coordination and a...
BA offers an array of services customized to the needs of middle-market clients Overview of Benning Associates Scope of Se...
No one said middle-market dealmaking today was easy…
Leading economic indicators improved throughout 2009, but are deals on the horizon in 2010? Leading Indicators: Conditions...
2010: Venture capital investors will strongly consider monetizing their investments via the “right” sale opportunity Leadi...
2010: Venture capital investors will strongly consider monetizing their investments via the “right” sale opportunity Leadi...
Leading Indicators: Conditions Improving? Forward-Looking Economic Signals Are Less Bad  Leading economic indicators have ...
Despite the fresh start of a new calendar year and upbeat leading economic indicators, uncertainly has still managed to im...
2009 Hope vs. Q1 2010 Reality >$5B Global M&A Transactions Globally, mega deals saw a dramatic drop over the last 90 days ...
2009 Hope vs. Q1 2010 Reality <$250MM National M&A Transactions Nationally, there was a modest drop in deal volume and a g...
2009 Hope vs. Q1 2010 Reality <$250MM Massachusetts M&A Transactions In Massachusetts, this quarter-over-quarter decline w...
2009 Hope vs. Q1 2010 Reality <$100MM National M&A Transactions Nationally, there was a drop in deal volume and deal value...
2009 Hope vs. Q1 2010 Reality <$100MM Massachusetts M&A Transactions Again, in Massachusetts, this quarter-over-quarter de...
Healthcare and software deals have dominated middle-market M&A in Massachusetts in 2010 2009 Hope vs. Q1 2010 Reality <$25...
There are several key areas to look for M&A activity in the lower middle-market in 2010 Lower Middle-Market Insights Where...
Lower Middle-Market Insights Divestitures to Drive Sub-$100MM Deal Activity  Source:  Dealogic. Note:  Excludes financial ...
Lower Middle-Market Insights Private Acquirors Increasingly Active in the Sub-$100MM M&A Market  <ul><li>The % of private ...
Lower Middle-Market Insights Cross-Border M&A Attractive But Challenging  Source:  Dealogic. Note:  Excludes financial ser...
Lower Middle-Market Insights Regional Segments of Cross Border Buyers While not surprising given the progress made in the ...
Lower Middle-Market Insights Health Care M&A Has Bucked Negative M&A and Financing Market Trends  Health care M&A will con...
Lower Middle-Market Insights Life Sciences Deals Drive Overall Health Care Transaction Growth Pharma continues to search f...
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2010 Middle-Market M&A Review and Outlook

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  • 2010 Middle-Market M&A Review and Outlook

    1. 1. Middle-Market M&A Review and Outlook April 2010 Benning Associates LLC 101 Federal Street - Suite 1900 Boston, MA 02110 www.BenningLLC.com (617) 261-3999 Confidential
    2. 2. <ul><li>Technology has changed investment banking </li></ul><ul><ul><li>We can do so much more with so much less </li></ul></ul><ul><ul><li>We have more time to understand your business </li></ul></ul><ul><ul><li>More time to listen, to learn your concerns, and to develop a strategy and approach that optimizes your objectives </li></ul></ul><ul><li>The result is more for the client </li></ul><ul><ul><li>Our goal is better advice </li></ul></ul><ul><ul><li>Better advice generates more shareholder value and less transaction risk </li></ul></ul><ul><ul><li>M&A specialists at leading law firms recommend BA's senior bankers to their clients </li></ul></ul><ul><li>Markets, regulations and technology are changing the M&A advisory business </li></ul><ul><ul><li>Differentiated M&A boutique and trusted long-term advisor to our clients </li></ul></ul><ul><ul><li>Provide sound advice, not simply expedient answers </li></ul></ul>The financial services industry is changing – we are a new type of M&A advisor for a new economic paradigm. Experienced, efficient and lean. Overview of Benning Associates BA Believes in More Technology and Less Mahogany Who We Are <ul><li>Leading next-generation boutique investment bank </li></ul><ul><ul><li>Provide corporate finance and M&A advisory services to private and public middle market companies and investors </li></ul></ul>How We Do It <ul><li>More experience is better, but more overhead isn't </li></ul><ul><ul><li>We have a different client service model </li></ul></ul><ul><ul><li>We are hands on </li></ul></ul><ul><ul><li>We have more use for laptops and smart phones than fancy offices </li></ul></ul>What We Do <ul><li>Our transaction experience is different than most boutiques </li></ul><ul><ul><li>Have closed more deals, and have more: </li></ul></ul><ul><ul><ul><li>Public company experience </li></ul></ul></ul><ul><ul><ul><li>Buy-side experience </li></ul></ul></ul><ul><ul><ul><li>Cross-border experience </li></ul></ul></ul><ul><ul><ul><li>Special committee experience </li></ul></ul></ul>
    3. 3. Our team is a re-united group of successful investment bankers poised to serve a market requiring close coordination and agility Overview of Benning Associates Team DNA in Place <ul><li>The “Team” concept means something more here – having worked together at prior firms focused on middle-market transactions: we know that we can rely on each other at the most critical times </li></ul><ul><li>Greg Benning has completed over 150 transactions while with Adams Harkness, Barrington Associates, Salomon Brothers, and Tucker Anthony </li></ul><ul><li>Jay Remington has over $22 billion of transaction value experience from Adams Harkness, Barrington Associates, Houlihan Lokey, Merrill Lynch, and Lehman Brothers </li></ul><ul><li>Pete Cahill has completed over 75 transactions while with Adams Harkness and First Albany </li></ul>Robert Roose Vice President Matt Brochu Associate Miles Littlefield Associate Greg Benning Founder Jay Remington Founder Pete Cahill Managing Director Senior Banking Team Execution Professionals
    4. 4. BA offers an array of services customized to the needs of middle-market clients Overview of Benning Associates Scope of Services Scope of Services Acquisition Search Business Sales and Divestitures Capital Sourcing Outsourced Corp. Development Retained Advisory Specialty Advisory Assignment Description Why Benning Associates? <ul><li>Screen, analyze and approach potential targets </li></ul><ul><li>Acquisition of identified target </li></ul><ul><li>Sale of 100% of equity </li></ul><ul><li>Asset and stock sales </li></ul><ul><li>Complete/partial liquidity </li></ul><ul><li>Fund growth or acquisitions </li></ul><ul><li>Recapitalize or take money off the table </li></ul><ul><li>Special committee assignments </li></ul><ul><li>Secondary advisor to clients </li></ul><ul><li>Ongoing reviews of business plans and interim operating results </li></ul><ul><li>Provide regular updates </li></ul><ul><li>Analyze and execute corporate development initiatives </li></ul><ul><li>1/3 of our experience involves representing acquirors </li></ul><ul><li>Reputation for market-driven valuation, structuring and negotiation strategy </li></ul><ul><li>Expert sell-side process managers </li></ul><ul><li>Strong relationships within private equity community and universe of strategic acquirors </li></ul><ul><li>Draw on our bulge bracket, regional and boutique capital markets experiences </li></ul><ul><li>Extensive network of financing counterparties </li></ul><ul><li>Expert in various forms of opinions and takeover defenses </li></ul><ul><li>Managing other investment bankers, lenders or underwriters </li></ul><ul><li>Managing for value and positioning clients for future financing or M&A </li></ul><ul><li>Key insights into market environment and competitive landscape </li></ul><ul><li>Create a long-term working relationship </li></ul><ul><li>Allow for a better position to pursue corporate transactions when attractive opportunities present themselves </li></ul>
    5. 5. No one said middle-market dealmaking today was easy…
    6. 6. Leading economic indicators improved throughout 2009, but are deals on the horizon in 2010? Leading Indicators: Conditions Improving? Good Reasons for Optimism in 2010 Leading Economic Indicators <ul><li>The recent performance of the capital markets as well as other leading indicators have appeared to point to an improving economy and, many have speculated, a rebound in M&A activity </li></ul><ul><ul><li>The S&P 500 Volatility Index has come down significantly off its peak in late 2008 </li></ul></ul><ul><ul><li>The Dow Jones Industrial Average has rebounded over the last nine months, surpassing the 10,000 point mark for the first time in over a year </li></ul></ul><ul><ul><li>Leveraged loan spreads have declined sharply from the highs reached in Q4 2008 </li></ul></ul><ul><ul><li>After bottoming in Q4 2008, CEO confidence as of Q4 2009 is at it highest level since 2007 </li></ul></ul><ul><ul><li>Initial unemployment claims have generally been on the decline over the last nine months </li></ul></ul><ul><ul><li>After declining through 2008, average weekly manufacturing hours have been on the rise since Q1 2009 </li></ul></ul>
    7. 7. 2010: Venture capital investors will strongly consider monetizing their investments via the “right” sale opportunity Leading Indicators: Conditions Improving? Capital Markets Show Improvement Relative to a Bottom Source: Yahoo Finance, data through 3/24/10 Source: Yahoo Finance, data through 3/24/10 <ul><li>Historically, the VIX has settled just below 20, where the VIX currently lies </li></ul><ul><li>The VIX began to rise in September of 2008 and did not fall back below 20 until December of 2009 </li></ul>The VIX has retreated to historical levels, indicating a normalizing market 2004 – 2010YTD S&P 500 Volatility Index 2008 – 2010YTD S&P 500 Volatility Index
    8. 8. 2010: Venture capital investors will strongly consider monetizing their investments via the “right” sale opportunity Leading Indicators: Conditions Improving? Capital Markets Show Improvement Relative to a Bottom Source: Yahoo Finance, data through 3/24/10 Source: Yahoo Finance, data through 3/24/10 <ul><li>Between 2004 and 2006, the Dow Jones Industrial Index spent most of its time between 10,000 and 11,000, consistent with current levels </li></ul><ul><li>The Dow Jones Industrial Index declined precipitously in September of 2008 dropping below 7,000 by March of 2009; it has since steadily recovered back to September of 2008 levels </li></ul>The Dow Industrial Index has returned to pre-financial crisis levels 2004 – 2010YTD Dow Jones Industrial Index 2008 – 2010YTD Dow Jones Industrial Index
    9. 9. Leading Indicators: Conditions Improving? Forward-Looking Economic Signals Are Less Bad Leading economic indicators have improved markedly and brought a greater sense of stability—an important requirement for deals that make sense right now to transact Source: The Conference Board, data through 12/31/09 Source: Bureau of Labor Statistics, data through 3/20/10 Source: Bureau of Labor Statistics, data through 2/28/10 Source: Standard & Poor’s, data through 12/31/09 Average Discounted Spread of Leveraged Loans Weekly Initial Unemployment Claims Average Weekly Manufacturing Hours CEO Sentiment of Economic Conditions
    10. 10. Despite the fresh start of a new calendar year and upbeat leading economic indicators, uncertainly has still managed to impact the M&A market 2009 Hope vs. Q1 2010 Reality What Happened? “ What a difference six weeks make. It's only taken that long for the green shoots of optimism that had been burgeoning in M&A by the end of last year to be choked off by rising uncertainty and market volatility.” – The Deal Magazine, February 19, 2010 Another Shake-Up <ul><li>In early 2010, decision-makers were again spooked by more instability and deal volume suffered </li></ul><ul><ul><li>Whether it is Scott Brown’s surprise victory for the late Ted Kennedy’s Senate seat, the bitter divisiveness over ObamaCare or Greece's, Portugal's and Spain's deficit troubles, hopes for a rebounding M&A market were interrupted </li></ul></ul><ul><li>This interruption has negatively affected all segments of the M&A market </li></ul><ul><ul><li>Mega deals showed a steady increase in volume throughout 2009 until Q1 of 2010; deal value also declined significantly in Q1 of 2010 </li></ul></ul><ul><ul><li>Middle-market and lower middle-market deal volume and value, nationally and in Mass, also took a hit in Q1 of 2010 </li></ul></ul>
    11. 11. 2009 Hope vs. Q1 2010 Reality >$5B Global M&A Transactions Globally, mega deals saw a dramatic drop over the last 90 days <ul><li>M&A Transaction Volume </li></ul><ul><ul><li>Transaction volume in Q1 of 2010 decreased by 23% since Q4 of 2009 </li></ul></ul><ul><ul><li>Transaction volume in Q1 of 2010 increased by 25% since Q1 of 2009 </li></ul></ul><ul><li>M&A Transaction Value </li></ul><ul><ul><li>Transaction value in Q1 of 2010 decreased by 42% since Q4 of 2009 </li></ul></ul><ul><ul><li>Transaction value in Q1 of 2010 decreased by 43% since Q1 of 2009 </li></ul></ul>Source: Dealogic Note: Transactions with disclosed Deal Value greater than $5 billion, excluding minority deals, financial services, real estate, and insurance transactions 2009 – 2010 Global M&A Transaction Volume and Value
    12. 12. 2009 Hope vs. Q1 2010 Reality <$250MM National M&A Transactions Nationally, there was a modest drop in deal volume and a greater drop in deal value between Q4 09 and Q1 10 <ul><li>M&A Transaction Volume </li></ul><ul><ul><li>Transaction volume in Q1 of 2010 decreased by 12% since Q4 of 2009 </li></ul></ul><ul><ul><li>Transaction volume in Q1 of 2010 increased by 12% since Q1 of 2009 </li></ul></ul><ul><li>M&A Transaction Value </li></ul><ul><ul><li>Transaction value in Q1 of 2010 decreased by 16% since Q4 of 2009 </li></ul></ul><ul><ul><li>Transaction value in Q1 of 2010 increased by 31% since Q1 of 2009 </li></ul></ul>Source: Dealogic Note: Transactions with disclosed Deal Value less than $250 million, excluding minority deals, financial services, real estate, and insurance transactions 2009 – 2010 National M&A Transaction Volume and Value
    13. 13. 2009 Hope vs. Q1 2010 Reality <$250MM Massachusetts M&A Transactions In Massachusetts, this quarter-over-quarter decline was significantly more pronounced <ul><li>M&A Transaction Volume </li></ul><ul><ul><li>Transaction volume in Q1 of 2010 decreased by 20% since Q4 of 2009 </li></ul></ul><ul><ul><li>Transaction volume in Q1 of 2010 equaled Q1 of 2009 </li></ul></ul><ul><li>M&A Transaction Value </li></ul><ul><ul><li>Transaction value in Q1 of 2010 decreased by 42% since Q4 of 2009 </li></ul></ul><ul><ul><li>Transaction value in Q1 of 2010 decreased by 27% since Q1 of 2009 </li></ul></ul>Source: Dealogic Note: Transactions with disclosed Deal Value less than $250 million, excluding minority deals, financial services, real estate, and insurance transactions 2009 – 2010 Massachusetts M&A Transaction Volume and Value
    14. 14. 2009 Hope vs. Q1 2010 Reality <$100MM National M&A Transactions Nationally, there was a drop in deal volume and deal value between Q4 09 and Q1 10 <ul><li>M&A Transaction Volume </li></ul><ul><ul><li>Transaction volume in Q1 of 2010 decreased by 12% since Q4 of 2009 </li></ul></ul><ul><ul><li>Transaction volume in Q1 of 2010 increased by 9% since Q1 of 2009 </li></ul></ul><ul><li>M&A Transaction Value </li></ul><ul><ul><li>Transaction value in Q1 of 2010 decreased by 15% since Q4 of 2009 </li></ul></ul><ul><ul><li>Transaction value in Q1 of 2010 increased by 26% since Q1 of 2009 </li></ul></ul>Source: Dealogic Note: Transactions with disclosed Deal Value less than $100 million, excluding minority deals, financial services, real estate, and insurance transactions 2009 – 2010 National M&A Transaction Volume and Value
    15. 15. 2009 Hope vs. Q1 2010 Reality <$100MM Massachusetts M&A Transactions Again, in Massachusetts, this quarter-over-quarter decline was significantly more pronounced <ul><li>M&A Transaction Volume </li></ul><ul><ul><li>Transaction volume in Q1 of 2010 decreased by 21% since Q4 of 2009 </li></ul></ul><ul><ul><li>Transaction volume in Q1 of 2010 equaled Q1 of 2009 </li></ul></ul><ul><li>M&A Transaction Value </li></ul><ul><ul><li>Transaction value in Q1 of 2010 decreased by 46% since Q4 of 2009 </li></ul></ul><ul><ul><li>Transaction value in Q1 of 2010 decreased by 37% since Q1 of 2009 </li></ul></ul>Source: Dealogic Note: Transactions with disclosed Deal Value less than $100 million, excluding minority deals, financial services, real estate, and insurance transactions 2009 – 2010 Massachusetts M&A Transaction Volume and Value
    16. 16. Healthcare and software deals have dominated middle-market M&A in Massachusetts in 2010 2009 Hope vs. Q1 2010 Reality <$250MM Massachusetts M&A Transaction Overview 2010 <$250m Massachusetts M&A Transaction List
    17. 17. There are several key areas to look for M&A activity in the lower middle-market in 2010 Lower Middle-Market Insights Where will the growth come from? Key Insights on Sub-$100MM Deals <ul><li>M&A transactions with deal values of $100MM or less are considered to be the core of the M&A market. </li></ul><ul><li>Understanding emerging trends in this market is critical for business leaders and advisors. These are some of the trends we are seeing: </li></ul><ul><ul><li>Divestitures could drive a 2010 rebound in lower middle-market deal activity </li></ul></ul><ul><ul><li>Increased acquisition activity by private strategic acquirors </li></ul></ul><ul><ul><li>Shifting dynamics in the regional mix of cross border acquirors </li></ul></ul><ul><ul><li>The health care sector, driven in large part by life sciences deals, has led the lower middle market in M&A activity as the only sector continuing to show consistent gains </li></ul></ul>
    18. 18. Lower Middle-Market Insights Divestitures to Drive Sub-$100MM Deal Activity Source: Dealogic. Note: Excludes financial services, real estate, and insurance transactions. <ul><li>Divestitures are typically one-third of the M&A overall market, characterized by product line and divisional sales </li></ul><ul><li>Overall M&A tends to lag the stock market by several quarters, but increases in divestitures are an early cycle phenomenon </li></ul>We foresee a sizeable increase in divestiture volume in 2010 as companies re-focus, sell off non-core businesses and seek funding without additional borrowing 2000 – Q1 2010 Divestitures as % of US M&A <$100MM
    19. 19. Lower Middle-Market Insights Private Acquirors Increasingly Active in the Sub-$100MM M&A Market <ul><li>The % of private acquirors has grown significantly in the sub-$100 M&A market over the last few years </li></ul><ul><li>The drivers have included: </li></ul><ul><ul><li>Sponsor-backed company add-ons </li></ul></ul><ul><ul><li>Public buyers are unable to achieve EPS impact with smaller deals </li></ul></ul><ul><ul><li>Private strategics are willing to pay for synergies and the intrinsic value of smaller targets </li></ul></ul>With public buyers sitting on cash more and more in recent quarters, it is important to consider the universe of healthy private companies that may be looking to grow via the right deal Source: Dealogic. Note: Excludes financial services, real estate, and insurance transactions. Also excludes sponsor-backed transactions. 2000 – Q1 2010 Private Acquirors as % of Acquirors in US M&A <$100MM
    20. 20. Lower Middle-Market Insights Cross-Border M&A Attractive But Challenging Source: Dealogic. Note: Excludes financial services, real estate, and insurance transactions. <ul><li>The geographic shift in buyers is a function of expanding Asian economies, globalization and the decline of the US$ versus other acquisition currencies </li></ul><ul><li>While business leaders should take advantage of this growing international interest, key risks must be understood and managed </li></ul><ul><ul><li>Deals take longer to negotiate & close </li></ul></ul><ul><ul><li>International buyers often like to partner before buying </li></ul></ul><ul><ul><li>Post-deal, cultural and business norm differences </li></ul></ul><ul><ul><li>Managing across long distances is challenging </li></ul></ul>We expect this trend line to continue as foreign buyers exploit currency advantages and the US loses market share in the global economy 2000 – Q1 2010 Cross Border Buyers as a % of US M&A <$100MM
    21. 21. Lower Middle-Market Insights Regional Segments of Cross Border Buyers While not surprising given the progress made in the Chinese and Indian manufacturing and service sectors, this shift has important implications for M&A planning, strategy, execution and tactics Source: Dealogic. Note: Excludes financial services, real estate, and insurance transactions. <ul><li>There is a clear ascension of China and India </li></ul><ul><ul><li>Europe/Middle East/Africa (EMEA) buyers have lost their majority share </li></ul></ul><ul><ul><li>Asia/Pacific (ASIAP) buyers though have roughly doubled their share </li></ul></ul>2000 – Q1 2010 Regional Breakdown of Buyers as % of US M&A <$100MM
    22. 22. Lower Middle-Market Insights Health Care M&A Has Bucked Negative M&A and Financing Market Trends Health care M&A will continue its growth into 2010 as acquirors look to add new revenue and financing becomes more accessible Source: Dealogic. <ul><li>The health care M&A and financing market has proven to be resilient to the downturn, as the drivers for this industry are unique relative to other sectors </li></ul><ul><ul><li>Continued acquisitive behavior among pharma and device consolidators </li></ul></ul><ul><ul><li>Positive growth drivers in health care IT </li></ul></ul><ul><ul><li>Consolidation among health care services companies to grow market share </li></ul></ul>2000 – Q1 2010 Global Health Care Transactions <$100M
    23. 23. Lower Middle-Market Insights Life Sciences Deals Drive Overall Health Care Transaction Growth Pharma continues to search for the next blockbuster, leading to available financing and healthy exits for many early- and mid-stage life sciences companies with promising data <ul><li>Pharma continues to ravenously pursue assets that add to their shrinking pipelines </li></ul><ul><li>High-priority therapeutic categories, novel delivery technologies and promising discovery platforms will continue to drive the interest of cash-rich acquirors and investors </li></ul><ul><li>Increased VC financings, strategic investments and structured partnerships demonstrate pharma’s strategy of downside protection </li></ul>Source: Dealogic. 2000 – Q1 2010 Global Life Sciences Transactions <$100M

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