2009 has been a rough year for Mergers and Acquisitions in the distribution industry. Vetus Partners' Jay Greyson says that he is "starting to see the clouds parting," and "normalcy" in the market is on the horizon ... but the horizon is still relatively far away. For some sectors, such as those that serve construction markets, making a deal is the last thing on distributors' minds. The focus for some is still on survival.
Greyson spoke to me today about the state of the M&A market at year's end. The discussion came on the heels of Vetus Partners' winning a series of awards at The M&A Advisor's 8th Annual M&A Awards in New York City earlier this week, including “Boutique Investment Bank of the Year”; two of the awards were given for the investment banking firm's work on the Embarq Logistics deal, a more than half-billion dollar carve-out from Embarq Corp. Embarq Logistics is a distributor of equipment, materials and supplies to the telecommunications industry.
The work the team did on the Embarq deal was emblematic of conditions over the past year – for Greyson, the successful deal was one of the most complicated he has ever worked thanks to the implosion of the U.S. financial system, and soon after, the economy. The banking system continued to be in disarray for much of this year, making it difficult to push through deals. In fact, many deals fell apart due to the difficulty of securing financing.
While conditions are improving, M&A markets still have a long way to go. Some of the high points from Greyson:
- Distressed deals are still among the most common in all industries, but as Greyson told me a few months ago, some distributors have held on too long before seeking out a partner, and when they reached out, it was too late to make a deal.
- Creative deal structuring is widespread. Family-owned companies looking for liquidity but recognizing that it may take years for markets to bounce back are putting their businesses on the market and structuring deals so they see an upside down the road based on the company's future earnings.
- On the valuation front, expectations have started to "rationalize to a reasonable extent," Greyson says. But distributors that are best-in-class and hold a strong platform potential are receiving premium valuations like those seen a few years ago. "There is a bifurcation in the market," he says. Valuations outside of best-in-class deals are "typically well below peak levels."
Recent M&A deals in distribution: