SPONSORED REPORT




    SOURCING                      The




                   Middle-market
                   compani...
Contents
Introduction .......................................................... 1


Survey Findings ........................
Introduction                                                            The need to maximize resources
                   ...
Introduction



Looking for sector opportunities                                     say this is even more important than ...
Survey Findings
Chart 1. Do you expect your company to consider                         Chart 2.are your your expectations...
Survey Findings



Chart 3. Who is primarily responsible for locating                        Chart 4. What is the most imp...
Survey Findings


Chart 5. What type of media do you use to find out                  Chart 6. For which of the following ...
Survey Findings


Chart 7. How important is making a cross-border/                     Chart 8. What is your company’s top...
Expert Insights                                                      makes this time more unique. Individually owned firms...
Expert Insights



Luke Gosselin, Co-Founder and Co-Portfolio Manager                     to see significant financing opp...
Expert Insights



Brent Gledhill, Global Head of Corporate Finance at                    How do valuations look?
William ...
About Merrill DataSite
                           Merrill DataSite™ is a comprehensive virtual data room (VDR) solution th...
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Survey Report Sourcng The Deal In The Mid Market. M&A Activity In 2010 The Deal April 2010[1]

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Middle-market companies are gearing up for more acquisitions
this year—a sure sign that firms are starting to glimpse a
bottom to the recession. Although the recovery remains fragile,
more companies are expecting 2010 to be a busier year for deal
flow than 2009 (Chart 1) as equity markets stagger back to life
and opportunities re-emerge. This is already evident in the deal
flow since the start of 2010, with 180 announced or completed
middle-market deals ranging from $50 million to $1 billion
through March, according to pipeline.thedeal.com. That’s a
23% increase over the 146 deals done or announced for the
same period last year.

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Survey Report Sourcng The Deal In The Mid Market. M&A Activity In 2010 The Deal April 2010[1]

  1. 1. SPONSORED REPORT SOURCING The Middle-market companies gear up for more M&A activity in 2010 Presented by In association with
  2. 2. Contents Introduction .......................................................... 1 Survey Findings ......................................................3 Expert Insights .......................................................7 Willie Woods, ICV Partners ..................................7 Luke Gosselin, Aladdin Credit Partners ................8 Brent Gledhill, William Blair & Co. ........................9 Survey Notes Merrill Corp. and The Deal surveyed 150 middle-market companies to determine how these firms source M&A deals. Most are smaller-tier firms in the banking and finance sector (37% of all respondents) and have less than 50 employees. Roughly half (49%) of the participants said they announced less than five acquisitions or divestitures in 2009, while 52% said the average dollar value of their acquisitions for this period was under $50 million. 2 • Sourcing the Deal • May 2010
  3. 3. Introduction The need to maximize resources As companies scout for opportunities, they say they’re most focused on targets that make a good strategic fit with their Middle-market companies are gearing up for more acquisi- business. Finding these opportunities can be especially chal- tions this year—a sure sign that firms are starting to glimpse a lenging for middle-market companies, which tend to have bottom to the recession. Although the recovery remains fragile, fewer resources and thinner networks than better-capitalized more companies are expecting 2010 to be a busier year for deal companies. So making the most of available resources is essen- flow than 2009 (Chart 1) as equity markets stagger back to life tial. Some companies prefer to own the deal process, with 39% and opportunities re-emerge. This is already evident in the deal of respondents saying their internal corporate dealmakers flow since the start of 2010, with 180 announced or completed have primary responsibility for locating acquisitions or buyers middle-market deals ranging from $50 million to $1 billion for divestitures (Chart 3). Dedicated deal teams can apply through March, according to pipeline.thedeal.com. That’s a their industry expertise more directly in the due diligence 23% increase over the 146 deals done or announced for the process—which can be a big advantage over those that farm same period last year. this responsibility to others. To better understand how these companies are sourcing new “If you’re a buyer and there’s a question of resources, will you deals—what sectors are on their radar screens, criteria for do better if you have a dedicated business development person assessing targets and their view for 2010—Merrill Corporation talking to the market about what’s going on? Absolutely,” says and The Deal surveyed 150 middle-market companies. Some Eatroff. “This is particularly so in sectors where there’s not as 52% of those surveyed said deals had generally ranged below much transparency.” $50 million in 2009, while 68% now say they expect the size of transactions to increase for 2010—in the range of $50 million While many prefer direct control in the deal process, execu- to $1 billion (Chart 2). tives also recognize the importance of partnering, with some 33% saying they share this work with investment banks, advi- “We’re only just starting to see more M&A activity. There’s a lot of sory and law firms and other external methods. To a much cash in the sidelines, so that’s the good news,” says Bruce Eatroff, lesser extent, corporate dealmakers also tap professional a partner at New York-based private equity firm Halyard Capital. networking associations, while others choose to hand the “If you’re a strategic buyer, this could be a good opportunity to core responsibility for finding deals to designated profes- pick up a competitor and take real costs out. Or deals could be so sional partners outside the firm. This may be more common cheap that people say we’ve reached the bottom. The question among smaller firms with fewer resources. But bottom line, is if it’s the bottom.” This is precisely what many companies are most companies look to some extent on outside resources. trying to determine as they sift through sectors that have been Even when companies depend on their own internal groups hit hard, such as consumer-related and media companies. to source possible deals, 45% say they rely foremost on profes- sional relationships (Chart 4). More than half of the companies surveyed say conditions for doing deals remain “difficult.” But there are also signs that the Companies say another important resource is old-fashioned environment is improving, with 29% saying conditions for word-of-mouth information, as well as cold calls, media reports, finding appropriate targets are “somewhat easy.” Glimmers of Securities and Exchange Commission filings and public state- optimism are also evident as companies begin to focus more on ments. Of those who favor the media for their information valuations and less on financing issues, with 48% saying their source, 80% say they use the Internet (Chart 5), reflecting a biggest challenge in acquiring deals is valuation and 47% still hunger for information in a market that has been traditionally focusing on financing (Sidebar, page 3). While this is an admit- opaque. That’s because the middle market has a large number tedly narrow margin, it does suggest that companies are at least of private companies, which aren’t subject to the same level of starting to look around again for new deals. “Concern about financial disclosure that public firms are. valuation is the best sign that these companies are no longer spooked and are ready to buy businesses again,” says Brent “Media usage is an important tactic for people in corporate Gledhill, global head of corporate finance at Chicago-based development,” says Gledhill. “Whether it’s looking at the investment firm William Blair & Co. LLC. “We’ve had a number Internet, reading The Deal, The Wall Street Journal or people’s of calls from strategists and a lot more meetings over coffee.” tweets—they are pulling in as much data as they can.” May 2010 • Sourcing the Deal • 1
  4. 4. Introduction Looking for sector opportunities say this is even more important than financial performance. As capital markets recover, middle-market companies are Strategic strength can improve the odds of preserving and focusing on sectors that have more potential to recover with generating greater value down the road. For example, when the economy or benefit from resolutions to political and regula- business models and management teams fit well together, it tory uncertainties. Respondents say they’re particularly focused can enhance synergies. When it comes to assessing risk, corpo- on healthcare/pharmaceuticals, financials, information tech- rate dealmakers put a heavy emphasis on accurate financial nology, energy, consumer products and media this year (Chart bookkeeping and revenue projections—with 35% saying this is 6). Healthcare, which has started to stabilize since the recent the biggest concern when they conduct due diligence. Gledhill passage of healthcare legislation, tops the radar screens of those says these concerns relate directly to the Sarbanes-Oxley Act surveyed. Others believe consumer products will get a boost as of 2002, which introduced major changes to the regulation of consumer spending improves. corporate governance and financial practice. “The worry and need to know what exactly is on your balance sheet has been Information technology is another sector that is gaining favor heightened because of this act,” he says. after suffering from big research and development spending cuts. Some think the sector has tremendous promise for growth as companies reignite their R&D spending machines. In another Credit remains tight and cash more plentiful sign of the times, nearly half of the respondents say they’re Companies that are already sitting on cash and are watching considering distressed acquisitions in 2010—an indication that the equity markets thaw are less prone to go to banks with hat in they’re seeing a bottom to the downturn and are more confi- hand to fund their acquisitions—which is just as well, because dent about the availability of bargains. banks remain reluctant to lend. About 19% of respondents said they would use cash in hand to fund their next acquisition, Still, others are cautiously eyeing cross-border opportunities, while just 2% said they would tap existing credit facilities and although the majority of respondents are U.S.-based and 36%—the biggest margin—said they would use a combination continue to clearly emphasize domestic deals. However, 23% of of cash, stock, outside funding sources and existing credit facil- respondents say cross-border deals will be “somewhat impor- ities (Sidebar, page 6). tant” this year (Chart 7), with 26% of those polled indicating that Asia has the greatest potential for growth in midmarket “We’re still looking at an economy that has a fragile recovery, acquisitions this year. That’s much higher than other regions. and so credit is still very scarce,” says Scott MacDonald, head of After Asia, the next highest-ranking region is South America, credit and economic research at Stamford, Conn.-based broker- with 6% expressing interest there. “Valuation, even after all dealer and investment firm Aladdin Capital Management LLC. of the market undulations, remains high in China and Korea,” “That credit issue is going to remain through the course of this Gledhill says. “The underlying economies are growing very fast, year. A lot of smaller banks are afraid of extending capital.” which suggests the best businesses have growth rates far higher Companies are well aware of these constraints, with 42% saying on average than those in the U.S. and Europe. Growth is the they find financing conditions still “stringent.” Still, a greater greatest determinant of value.” number—57%—say financing has become available on a case- by-case basis. This suggests that funds are available for those Companies say their greatest priority in assessing the merit that have solid balance sheets and compelling deals. That could of a deal—whether it’s overseas or at home—is determining bode well for those who will need to borrow as M&A activity whether a target is a good strategic fit (Chart 8). Some 58% picks up in the months ahead. 2 • Sourcing the Deal • May 2010
  5. 5. Survey Findings Chart 1. Do you expect your company to consider Chart 2.are your your expectations for the size of What What are expectations for the number Do you expect your company to consider making acquisitions and/or divestitures for the rest transactions based on deal size in 2010? of transactions based on deal size in 2010? of 2010? acquisitions and/or divestitures making for the rest of 2010? 68% No 23% Yes 77% 11% 9% 9% 2% 1% Increase Decrease Remain Increase Decrease Remain Companies continue to gear up for more acquisitions and dives- the same the same titures in 2010, with 77% of respondents saying they expect to Deals between Deals between increase such activity through the end of 2010. $50 mill. – $1 bill. $1 bill. – $5 bill. The majority of respondents (68%) see the greatest deal activity in transactions that are priced between $50 million and $1 billion, a bracket where many smaller-growth opportunities can be found right now. They generally expect deal values to rise in 2010 from 2009. Far fewer (9%) see an uptick in bigger deals worth between $1 billion and $5 billion. n Sidebar: 2010’s biggest challenge for middle Legal and regulatory hurdles market acquirers 5% In identifying the biggest challenges they face when lining up deals, middle-market respondents say valuation is marginally more of a concern than financing the deal (48% versus 47%). This is another sign that company sentiment is slowly improving, as companies start to wrestle more with how much a target is worth than the Financing Valuation 47% 48% difficulties in lining up financing—a common preoccupation for this sector and one that was even made more acute during the past two years. This may also reflect that some companies have greater cash cushions than usual. May 2010 • Sourcing the Deal • 3
  6. 6. Survey Findings Chart 3. Who is primarily responsible for locating Chart 4. What is the most important process your Who is primarily responsible for or buyers for possible middle-market acquisitions locating What is the mostgroup uses to locate possible company’s internal important process divestitures for your company? possible middle-market acquisitions or buyers your company’s internal group uses to locate deals? for divestitures for your company? possible deals? The responsibility is Professional 45% relationships Professional networ Word of mouth 14% 33% 39% Investment Bank/Ad Cold call 12% Follow up on SEC filings Internal M&A/corpo or public statements 11% Follow up on published reports 8% (newspaper/magazines/Internet) 7% Industry conferences or 6% 21% networking conferences Internal M&A/corporate dealmaking team Bottom line, it still matters who you know and how you mine your resources. Even those committed to driving the deal process Investment bank/advisory firm/law firm in their corporate development groups or the CEO’s office say Professional networking association or function professional relationships remain essential for landing deals. In The responsibility is shared among the aforementioned groups other words, they still rely extensively on outside contacts to track down deals, whether it’s established professional relation- ships or word of mouth. Many companies also glean information by tracking SEC filings and public statements. Many middle-market companies (39% of respondents) continue to rely on their in-house dealmakers to determine acquisition targets and buyers for divestitures. But they also recognize the value of networking and are often on the lookout for good information and contacts to help them make important connec- tions. And some companies are just too small to command the necessary resources. These considerations are reflected to some extent in the fact that 21% of respondents hand primary respon- sibility for locating deals to their investment banks, advisory and law firms. Others prefer to keep some control but combine resources, with nearly 33% saying they work alongside profes- sional contacts. 77% of respondents say they expect to increase deal activity through the end of 2010 4 • Sourcing the Deal • May 2010
  7. 7. Survey Findings Chart 5. What type of media do you use to find out Chart 6. For which of the following industries do you about companies media do you use to find out What type of for sale? expect the most activity in 2010? about companies for sale? For which of the following industries do you expect the most activity in 2010? Healthcare/ 36% Internet 80% pharmaceuticals Banking/finance 34% Industry-specific publications 34% Information 31% technology Radio 8% Energy 29% Consumer products 16% Television 7% Industrial products 16% Podcasts 4% Media 15% Software 15% The more information companies can glean about a prospec- Real estate 12% tive deal, the better. It’s no surprise, therefore, that some 80% of those surveyed who say they use the media as a research Telecom 10% tool also say they prefer the Internet over other media, such as podcasts and television. After the Internet, 34% say industry- Electronics 9% specific publications help. The Internet should continue to play Auto 8% a more important role in keeping companies informed about market developments and industry opportunities—especially Chemicals 8% as deal activity gathers steam. Unlike bigger companies, which have more extensive resources, corporate middle-market deal- Education 8% makers tend to be more stretched in this regard. Transportation 7% Retail 5% Other 5% Professional services (legal) 2% Companies are hunting for value and opportunity in sectors that have faced significant challenges in the economic downturn or sectors that have been under political or regulatory scrutiny and are now moving closer to some form of resolution. For example, some 36% of companies say they expect more activity in health- care deals for 2010—a sector that has recently begun to stabilize following government passage of healthcare reform. The Internet should continue to play a more important role in keeping companies informed about market developments and industry opportunities—especially as deal activity gathers steam May 2010 • Sourcing the Deal • 5
  8. 8. Survey Findings Chart 7. How important is making a cross-border/ Chart 8. What is your company’s top criteria when overseas acquisition making company in 2010? How important is for your a cross-border/ considering a company to possibly bid on? overseas acquisition for your company What is your company’s top criteria when in 2010? considering a company to possibly bid on? 3% Top 7% priority 12% 9% Somewhat important 23% 58% Not 23% essential 65% Strategic fit of target to current business Most of those surveyed are based in the U.S. and say they don’t Profitability consider cross-border/overseas deals as essential to their 2010 Other (please specify) acquisition strategies. Still, a number of companies are thinking about it, with 23% calling cross-border deals “somewhat impor- Your company’s current financial ability to make an acquisition tant” for this year. In a related question, 26% of respondents Geographic restrictions said Asia holds the greatest potential. And in another survey question relating to cross-border deals, more than half of respondents say they’re most interested in strategic benefits, followed by financial performance. Middle-market respondents say strategic fit is the single greatest factor they look at when deciding if they want to do a deal, with 58% ranking this as their No. 1 criteria. For example, some look to see whether management can work together and how well the business models complement each other. This is one way to help prevent deals from unraveling down the road. While profit- ability is also important, just 23% of companies said they focused primarily on this factor. In a related survey question, dealmakers say the greatest risk they worry about during due diligence is accurate financial bookkeeping and revenue projections. n Sidebar: Financing the next acquisition Combination Cash on hand of all or some As companies gear up for more M&A deals, they are planning to of the above 19% tap a mix of financial resources—cash, stock, external funding and 36% existing credit facilities. Although credit conditions have eased, 5% Stock banks have been slow to start lending again to the middle market. 21% Combination 17% of cash and stock 2% Raise financing from outside Tap existing sources credit facilities 6 • Sourcing the Deal • May 2010
  9. 9. Expert Insights makes this time more unique. Individually owned firms may also be motivated to do more deals because the capital gains tax is going up at the end of this year, so they recognize that even if they can’t get the full value they may have wanted Willie Woods, President and Managing Director of this year, they still don’t want to give the tax person their ICV Partners LLC money next year. This will make people want to do transac- tions as well. What is your firm’s focus in the middle markets? We’re a private investment firm focused on the lower end of the How do you source deals? middle market, with companies that have EBITDA between $5 All of our deals are sourced through some sort of investment million and $30 million. These companies represent the larger bank process. In today’s world, it’s difficult to find a proprietary part of the economy and so span most sectors, such as manufac- deal where there’s no investment bank involved. Most entre- turing, consumer products, industrial packaging and healthcare. preneurs are not sophisticated finance people, so this outside Because they’re small, they tend to have common issues— involvement leads to a more efficient use of their time. Our job whether it’s holes in management or they’ve been myopic in at ICV is to find what we call limited auction situations. Typi- their approach, or they’re offering only a single product. Many cally, this involves an entrepreneur- or family-owned business are entrepreneurs that have not had the financial resources to where family members have decided they want to bring in a pursue different products or distribution channels. financial partner to increase liquidity for their estates or do a product investment to diversify their wealth. Sometimes it’s a vision for how their company can grow. They aren’t interested Is M&A activity picking up? in talking with a lot of people. We have a very robust calling Last year was terrible for deal flow—ours was down by 12% program organized regionally by deal partner. You have to be to 15%. Because this is the riskier end of the middle market, top-of-mind with investment bankers so you’re included when financing goes away quicker and comes back more slowly. Valu- they get a call from an entrepreneur. ations came down in 2009 and companies that didn’t have to do a transaction decided to wait. That’s changing. Although the 2010 first quarter got off to a slow start, in the last 35 to 40 Are you focused on opportunities among distressed days our niche sector of the market has picked up substantially. companies? Credit markets have come roaring back, so lenders are back and pricing has gotten lower. Normally, this sector takes a while We’re in the middle of a deal right now that is typical of what to get re-energized, but that isn’t the case this time. Lending we like—a family-owned business that’s been around 50 years. terms in this sector are never as good as in the larger markets, We don’t see many distressed deals as they are not our focus— but nevertheless, credit availability is much stronger. And that’s that’s more for restructuring specialists. We’re not interested in what creates the environment for doing transactions. companies where earnings fell off the cliff, but would be inter- ested where someone put too much leverage on the company and the company had a stumble because of the economy but the Do you expect momentum to continue? core business is still fine and can be fixed with the right capital This is going to be a busy year, driven by the incredible return structure. But this is why we don’t do subordinated leverage— of the financial market. There’s also a lot of pent-up activity the smaller companies are always the first to get hit. Banks from 2009. I’ve heard some investment banks are making aren’t as sympathetic and just want to get these companies off eight to nine pitches a month, compared to three to four last their watch list and move on. So we think it’s prudent not to year. Normally, when you see that level of pitches, it means be overleveraged. If we’re competing with a private equity firm someone is going to get hired. I simply think there are many that advocates a lot of leverage, we’re going to win that contest more small companies than larger companies, which is what every time. May 2010 • Sourcing the Deal • 7
  10. 10. Expert Insights Luke Gosselin, Co-Founder and Co-Portfolio Manager to see significant financing opportunities in the middle market. of Aladdin Credit Partners LLC A lot of companies were able to get their lenders during the later part of 2008 and into 2009 to kick the can down the road on debt maturities and covenants, where financial institutions were What is the core focus of your business? not necessarily taking a realistic view of value but acted to avoid Last year we launched a credit opportunities fund that’s focused default and the necessity of marking down their positions. That on providing financing to distressed middle- and upper-middle- happened in the institutional market and to some extent in the market companies. But our mandate is relatively flexible. We middle-market sector. Some of these larger companies have now focus on prepetition financing, usually in the form of rescue been able to access the high-yield market and appear to have financing for companies that are bumping up against—maturi- weathered the storm. ties and covenants and have liquidity issues. If they have a lender that’s in a difficult position, there may be good reasons for us But there is also a preponderance of off-the-run middle-market to take a look and see if we can get our arms around the value, companies that can’t access the high-yield market, so that’s either enterprise value or in a very distressed situation where we where we’ll spend a fair amount of our time. Whether in the perceive there to be significant asset value. If the value is there, context of bankruptcy or outside bankruptcy, a lot of these we will contemplate putting a financing facility in place. companies need our type of financing and we’re taking advan- tage of that. There’s a gap between people who are willing to provide credit and those who aren’t. A lot of banks are reluc- Where are you seeing opportunities and how do you tant to extend capital given uncertainty surrounding regulatory source deals? capital requirements and the necessity to raise reserves. This is a particular concern among smaller banks that cater to middle- In the middle market, we continue to see a big universe of compa- market companies. nies that are experiencing financial duress that need our type of financing—creative, flexible alternative financing that’s not available to them from the large investment banks, commercial How difficult is it to determine value in the current and regional banks. For us, it’s all about being able to tap into market? the network of relationships that have historically advised or financed the middle market. We spend a lot of our time dealing My personal perspective is that we’re a lot closer to the bottom of with midmarket investment banks and financial advisors that the economic cycle than the top, so the judgment call regarding advise distressed companies. We’re very well tapped into the valuations is easier today than it was 24 to 36 months ago. As bankruptcy community from an attorney perspective. So it’s we’ve migrated down this path the last 12 months, initially that network of relationships that can bring us into many situa- it was very challenging to figure out what values were. Some tions. And given the fact that we were relatively successful in a companies weren’t even being valued at their hard asset values. tough market raising capital last year for our credit opportuni- For us, you have to take a longer-term approach and accurately ties fund, we’ve got something in capital that’s very precious, evaluate where we think midstream valuations will be. Then and which until recently other lenders haven’t been willing to I think at the end of the day you can get comfortable. If you part with. conclude the situation runs the risk of liquidation and the company doesn’t have a lot of restructuring value, you need to look at the assets and discern who the logical buyers of the Has the decline in defaults affected your business? assets are. You also need to determine where the company fits Our mandate is relatively flexible in terms of being able to in with the competition and if there’s a reason for the company finance companies across the spectrum—from prepetition to to continue to exist. This analysis is completely driven by your bankruptcy to post-bankrutpcy situations. Despite the recent view as to whether the company will successfully restructure or moderation of the corporate default rate in the U.S., we continue go away. 8 • Sourcing the Deal • May 2010
  11. 11. Expert Insights Brent Gledhill, Global Head of Corporate Finance at How do valuations look? William Blair & Co. LLC I can’t stress enough the difference between this year and 2009 and how this valuation gap has dissipated. This means a private equity firm with businesses that grew, can exit at two-and-a- Has your deal flow been picking up this year? half times their initial investment value—and that feels great. It Definitely. Just the fact that the market is stable again allows the used to be three and four times, but now two is the new three. M&A business to get off the mat. The valuation gap hangover That’s what I mean by saying the valuation gap is dissipating. that was still drifting around in 2009 impeded many of the This has allowed more deals to get done. What does this mean M&A deals, but that’s changing. Even with deal volumes down, for private companies? Fundamentally, they’re starting to see we’ve come out with a strong closing pattern in healthcare, firms merging and a lot of companies doing deals and M&A consumer, IT and business services. Basic consumer industries returning to the headlines. They see their financial portfolios are also attracting strategic interest. When the valuation hang- growing once again and realize selling now is no longer selling over dissipated, you saw strategic buyers with a lot of money at a bottom. and low interest rate facilities. Recently, they’ve been adding debt just to make sure they’re bulked up and ready for the next acquisition. Will deal activity carry into 2011? Here’s the potential future that we see: 2010 is the year of the sell-the-good-stuff. What does 2011 bring? We think next year What sectors are offering the best value? will bring more IPOs because the valuation spread between a We’re seeing a lot of activity in the healthcare, consumer and public financing and a sale to a strategic will likely remain tight. technology sectors. The consumer sector, which was unnatu- So the equity market will still look pretty good and there will be rally affected, is one of several opportunities we’re seeing. a need for strategic buyers. Usually food companies are very stable, but with the massive recoil in consumer spending, everything got hit. Now we’re seeing consumer, healthcare and technology sectors all coming Are you seeing more interest in cross-border deals? back. In healthcare, whether you like the healthcare reform act Typically, we have seen 35% to 40% of our M&A advisory proj- or not, this greater clarity has allowed people to take a view on ects result in counterparties from two different countries, and how the future will play out. In the healthcare world, we’re now 2010 feels like that will again be the case. We have seen active typically trading deals in the mid- to high teens on an EBITDA participation of European, Asian and North American buyers basis. You’re not going to get that unless you have a pretty clear in our recent sell-side projects. On a more limited basis, we see legislative and regulatory landscape. South American parties. Compared to 10 years ago, Asian buyers have evolved to being competitive and capable to win North Technology is also very attractive. If there’s a sector that’s American and European auctions. Previously, they moved at too been gagging for new, emerging small-cap companies, it’s slow of a pace and did not use valuation multiples as often to technology. The R&D curve for technology has been cut short underlie their bids. Now Korean and Japanese buyers compete because the larger companies have made so many acquisi- actively to the final moments in our processes and win an tions, meaning there’s been less R&D independence. Now the increasing number of those processes. IPO window is opening for technology companies and more of these deals are getting done. Many of these tech companies On the other hand, while people talk about a big appetite for have market caps from $200 million to $500 million. We’re Asia, we think few actually have the stomach for it for three currently named on more than 25 IPOs, and a big bulk of that reasons: diligence limitations, cultural divergence and elevated is for technology companies. That’s something the market valuation. For instance, the diligence process takes much hasn’t had for a long time. With the lack of capital, people longer and involves financial information, often with differing have once again started looking at public offerings as a way accounting principles from the U.S., lower internal control to set up an exit. thresholds and less transparency. May 2010 • Sourcing the Deal • 9
  12. 12. About Merrill DataSite Merrill DataSite™ is a comprehensive virtual data room (VDR) solution that accelerates the due diligence process by providing a secure online document repository for confidential time-sensitive documents. Merrill DataSite overcomes the many limitations of a traditional paper data room by enabling companies to present critical business information to multiple prospective buyers in a secure Web-based environment. As a result, transaction time and expense are dramatically reduced. Merrill DataSite can be rapidly deployed and is accessible by viewers throughout the world via the Internet. As a leading provider of VDR solutions worldwide, Merrill DataSite has empowered nearly 2 million unique visitors to perform electronic due diligence on thousands of transactions totaling trillions of dollars in asset value. Merrill DataSite is the first VDR provider to understand the customers’ and industry’s need to provide the highest level of security by obtaining an ISO/IEC 27001:2005 certifi- cate of registration and sets the standard as the world’s only VDR certified for their operations in the United States and Europe. About Merrill Corporation Founded in 1968 and headquartered in St. Paul, Minn., Merrill Corporation (www.merrillcorp.com) is a leading provider of outsourced solutions for complex business communication and information management. Merrill’s services include document and data management, litigation support, language translation services, branded communications programs, fulfillment, imaging and printing. Merrill’s target markets include the legal, financial services, insurance and real estate industries. With more than 5,200 people in over 70 domestic and 15 international locations, Merrill empowers the commu- nications of the world’s leading companies. With Merrill DataSite, your deal is virtually done. Merrill DataSite 225 Varick Street New York, NY 10014 Phone: 888.867.0309 Corporate Headquarters One Merrill Circle St. Paul, MN 55108 Phone: 800.688.4400 Offices in major cities throughout the world www.merrillcorp.com/datasite ©2010 Merrill Communications, LLC. All rights reserved. 10 • Sourcing the Deal • May 2010

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