Love at First Sight: M&A Activity Continues Slowdown in 1Q2017

S&P’s Capital IQ market intelligence report reveals that the slowdown in M&A activity that started in 2016 continued into the first quarter of 2017 in terms of the number of closed deals (excluding oil & gas and real estate).

transactions by deal size transactions by deal size 2017The dollar value of closed M&A deals managed a slight 2% increase, however:

m and a annual trends

 

We hear private equity groups and other capital allocators bemoan the lack of quality deal flow while we work hard every day to close that gap.

One interesting observation from the inside is that virtually every PEG we interact with that has a presence in Healthcare Services and Financial Services informs us that they are aggressively seeking quality acquisition candidates yet these two sectors show the largest year over year declines:

us manda activity by sector

The schizophrenic market conditions continue.  PEGs want deals yet many have become incredibly fastidious in their analysis of quality deals, bouncing them for reasons that are often difficult to articulate or that ordinarily would not be cause for concern beyond the normal due diligence processes.

We still consider the Healthcare and Financial Services sectors to be in high demand based on our work with capital allocators.  The current love at first sightmarket requires much more marketing than the average deal typically requires.  It has never been easy to place a deal but in the present market, if it is not love at first sight, we are finding that it is requiring two to three times longer to find the right partner and we have to market the deal to four to five times the number of potential partners than we market the typical deal to.

 

 

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At Vertical Capital Advisors, we are most often engaged by industry leaders to be the bridge to the capital they need to fuel growth.  We start with great leaders at great companies that have compelling, profitable business plans where the only missing ingredient is capital.

ABOUT VERTICAL

Vertical Capital Advisors is an Atlanta-area business advisory firm built on creating tangible value for our clients, serving clients in just about every industry.  Our clients are both capital growers and capital allocators.  How can Vertical help your firm maximize value?

Joe Briner
Managing Director
Vertical Capital Advisors LLC
briner@verticalcapitaladvisors.com
866-912-9543 ext 108

 

 

 

 

The Owner’s Dilemma

My partner David Esmie just coined a new phrase: The Owner’s Dilemma.

We were talking about Venezuela’s Supreme Court seizing power from the National Assembly in a continuation of the socialist movement started under Hugo Chaves and continued under his successor, the lesser-talented, ham-fisted Nicolas Maduro.

venezuela

Source: http://tinyurl.com/mawl9mr

I mentioned to David that Hugo had nationalized many industries, including the cash cow oil & gas industry and, of particular interest to me due to my past investments in a tiny gold miner Crystallex, the mining industry.  Chavez and Maduro pander to the masses that foreign corporations are raping the natural resources from the country, impoverishing the great and free citizens of Venezuela.  Money that should be lining the pockets of every Venezuelan instead are flowing to profiteering foreign capitalists.  Crystallex fought in the Venezuelan courts, and won, to have their contracts with the Venezuelan government upheld.  Crystallex had invested $2 billion developing gold mines and told the new regime, “If you nationalize, we will walk.  You do not have the expertise required to run the Los Cristinas mine”.

Hugo nationalized, Crystallex walked and Venezuela now owns 100% of a giant hole in the ground.  Not an ounce of gold has been mined.  Not only does Venezuela not have the expertise to run a $2 billion gold mine, with the crash in oil process, they no longer have the capital to even buy the expertise.  Citizens wait in long lines to buy necessities of life and there are constant marches and riots.

David commented, “That’s the owner’s dilemma – once you own it, you own it.  You get 100%.  You’ve got no one to blame if it doesn’t work out the way you want”.

So on Wednesday Venezuela’s Supreme Court dissolved the opposition-led National Assembly, consolidating near-dictator power in strongman Maduro.  He now “owns” the problems bludgeoning the Venezuelan citizenry.

Maduro continues to round up scores of opposition leaders on charges of treason.  I had lunch two years ago in Miami with the publisher of a Venezuelan newspaper who fled to the U.S. to avoid arrest and imprisonment at the hands of Chavez.  He would have been long forgotten by now had he stayed, if he even survived.

People often like to romanticize the “dreamers”, the Hugo Chavezes, the Nicolas Maduros and Che Guevaras who “fight” to give the means of production to the working man.  The problem is that unless you have a plan and the means to make those gifts productive, no one wins, everyone loses, prosperity sublimes.

The corollary in business (in the event that this is your first introduction to business principles) is that businesses with exceptional leaders, great great leadersbusiness plans and relevance in the market succeed – – they thrive.  In business you can’t survive by proclaiming your dominance and imprisoning your competition, no matter how much you may wish it to be so.

At Vertical Capital Advisors, we are most often engaged by industry leaders to be the bridge to the capital they need to fuel growth.  We start with great leaders at great companies that have compelling, profitable business plans where the only missing ingredient is capital.

 

ABOUT VERTICAL

Vertical Capital Advisors is an Atlanta-area business advisory firm built on creating tangible value for our clients, serving clients in just about every industry.  Our clients are both capital growers and capital allocators.  How can Vertical help your firm maximize value?

Joe Briner
Managing Director
Vertical Capital Advisors LLC
briner@verticalcapitaladvisors.com
866-912-9543 ext 108