Secondary transactions, or sales from one PE investor to another, have exploded this year. So far in 2010, there have been 121 completed secondary transactions, according to the PitchBook Platform. That's almost triple 2009's total of 43. Additionally, the median deal size has almost doubled from $215 million last year to $400 million in 2010. The largest secondary deal so far this year was the $1.785 billion acquisition of a 42.5% stake in Univar from CVC Capital Partners by Clayton, Dubilier & Rice, which closed in November. This year, the B2B Products and Services industry has been responsible for most of the secondary deal flow, accounting for 34.7% of the transactions, followed by B2C Products and Services with 33.9% and Information Technology with 11.6%.
According to a new report, merger and acquisition activity on the part of private strategic acquirers is at an all time high. Acquirers of middle-market companies usually consist of public companies, private companies, private equity firms and foreign buyers. Certain economic, lending and currency metrics typically drive how active each of these types of buyers are acquiring in any given market.
"Many privately-held companies have come to the realization that the only way to grow in this economy is through acquisition," said Mike Ryan, Executive Vice President of The Transition Companies. "Organic growth is simply too difficult in these economic conditions forcing growth through acquisition," he added.
In the last 3 months backward from September 30, 2010 private buyers have accounted for 45% of closed transactions with public buyers at 28%, private equity firms at 11% and foreign buyers at 16%. Since the year 2000, private buyers of middle-market companies have averaged 32% of closed transactions with public companies accounting for an average of 39%, private equity firms have averaged 15% and foreign buyers 14% of closed transactions.
Banks have begun to “genuinely” increase lending in the third quarter according to the latest Morgan Joseph Quarterly report on Restructuring Activity. “The spigot for lending has been on for some time at banks, but only for conservative forms of lending, such as agency backed mortgages or investment grade credit. However, it now appears that banks may have changed course by deploying capital in non-investment grade leveraged loans,” says James Decker a Managing
Director at Morgan Joseph.
According to the Report, in the third quarter banks accounted for 35% of all leveraged loans issued, up more than three-fold from the first half 2010 levels of 11% and surpassing levels not seen since 2001 when banks represented 45% of the market. Morgan Joseph says that “the magnitude of the banks’ re-entry into the marketplace represents a significant shift in lending practices” with banks working down their over $1 billion in pre-QE2 excess reserves.
GF Data’s Fall 2010 Report indicates completed deal volume in the middle market continued to accelerate in the third quarter, reflecting steady improvement in the M&A environment. “The third quarter of 2010 was, by all measures, the cool drink of water that a parched middle market had been waiting for,” said Andrew Greenberg, Chief Executive and Co-Founder of GF Data Resources. “We expect that deal volume will continue to expand heading into 2011, although we would stop well short of saying the market has strengthened enough to be impervious to backsliding.”