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M&A Activity Remains Strong
As seen in San Jose Business Journal
by Michael Sipe

Third quarter 1999 Mergers and Acquisitions activity continued at a phenomenal rate toward projected year-end figures that are expected to eclipse even the all time records set in 1998. According to Mergerstat, 1,791 M&A transactions valued at a total of $218.5 billion have been announced for the third quarter through early September. Also as of early September, total year-to-date transaction figures have risen to 6,256 deals worth $932.96 billion.

These torrid activity levels are supported by continued strength in the fundamental economic drivers - a strong stock market, stable interest rates, and confidence in corporate earnings.

For local middle market companies (annual revenues from $1 million to $50 million), M&A activity levels have also been very high. Local banking contacts report seeing just as many, if not more, acquisitions recently than over the past several years. It seems that owners of private middle market companies are much more interested in obtaining personal liquidity.

This trend may stem from a feeling that the strong economy may not last forever and now is a good time to sell, or from the fact that the average age of mid-market company owners is 50 or older and they are wanting to enjoy life a little more.

In addition, a recent study by the Association for Corporate Growth indicated that 69% of the respondents to their member survey expected their companies to aggressively consolidate and grow this year through acquisitions.

On the acquisition side of the equation, the interest level on the part of well-capitalized investment groups from across the country is noteworthy. Private Equities is receiving about 20 unsolicited new acquisition group inquiries per week from every state representing interests in widely diverse industries. These groups are quite professional and are seasoned investors with carefully targeted objectives.

Corporate buyers are also looking carefully at the implications of the decision of the Financial Accounting Standards Board (FASB) to preclude the use of the pooling of interest accounting method by January 1, 2001 - a move that could accelerate the pace of acquisitions over the next few months.

In the IT arena, according to Paul Deninger, chairman and CEO of Broadview International LLC, robust M & A activity is being driven by the acquisition of technology companies at an earlier stage of development and by targets that can provide e-commerce applications as well as customer service functions.

With all this activity, issues around successfully integrating the acquired entities are coming to the fore.

"Mergers and acquisitions work based on the successor's ability to transform two companies into one," says Vanita Wells, President of the Eclipse Group, a local supply chain consulting firm. "Optimizing infrastructure, logistics networks, processes and systems, all within the context of merging two disparate company cultures, is critical. In the rush to do deals, we are finding
that people often underestimate the post-acquisition logistics and
customer service issues. Achieving best results from company
integration requires excellent planning and implementation skills," said Ms. Wells.

Anticipate a fourth quarter filled with mergers and acquisitions as we head toward the end of another hot year.
 

Michael Sipe is president of Private Equities, a middle market mergers and acquisitions firm. You can reach him on:408.295.4299 or at inquiry@private-equities.com.
 

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