Friday, January 16, 2009
M&A Report
Merger and acquisition deals rake in less money as sellers lower expectations
Pittsburgh Business Times – by Patty Tascarella
Deal prices slumped in the Pittsburgh region during the fourth quarter of 2008, according to two recently released reports.
Sellers of small Pittsburgh companies lowered their expectations by year’s end as the average asking price was $235,000 in the fourth quarter, down from $284,000 during the final three months of 2007, according to BizBuySell.
San Francisco-based BizBuySell, which tracks the deals listed on its Web site in markets across the country, said 11 deals were sealed in Pittsburgh during the recently completed quarter, selling at a median price of $170,000. That compares to five at $800,000 a year earlier.
“They’re being very realistic about their ability to sell,” said Mike Handelsman, BizBuySell general manager.
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Rich Layton, president of Cecil-based Fairmont Supply Co., acquired Warren-based North Penn Pipe & Supply Inc. in November.
Handelsman said the increase in deals wasn’t significant and did not indicate a deviation from BizBuySell’s national findings: Fourth quarter deal closings were down 20 percent, from 1,541 transactions in 2007 to 1,232 in 2008.
But Handelsman said Pittsburgh may be doing worse than the nation as a whole.
“Median revenue and cash flow (for Pittsburgh companies currently for sale) are also declining, so my conclusion would be that Pittsburgh is actually seeing a greater impact from the economic trouble than the national average,” Handelsman said.
Median revenue was $363,000, down from $390,347 in the fourth quarter of 2007. Median cash flow, the money that comes out of the business over the course of a year, was $70,000, $10,000 less than a year ago.
Data from FactSet Mergerstat LLC, a Santa Monica, Calif.-based research firm, showed a drop in deals and dollars in the region, tallying seven acquisitions of Pittsburgh-area companies or business divisions. Just three of those revealed financials, which was a combined $45.28 million. During the fourth quarter of 2007, 23 companies or business divisions were sold: Nine disclosed deal price that, combined, topped $8.05 billion.
In this past quarter, Autodesk Inc. bought O’Hara-based engineering software developer Algor Inc. for $34 million, strengthening the San Rafael, Calif.-based acquirer’s advanced simulation capabilities. Additionally, Mylan Inc.’s business unit, Alternova Arzneimittel GmbH, was sold to Slovenian pharmaceuticals company KRKA for $1.66 million, and Appalachian Well Services of Indiana, Pa., was bought by Complete Production Services Inc. of Houston for $9.62 million.
And Fairmont Supply Co., a Cecil Township-based distributor of industrial supplies, marked its third purchase in less than two years in November when it acquired North Penn Pipe & Supply Inc., Warren, and hasn’t ruled out further deals.
“It has to be the right fit,” said Fairmont President Rich Layton. Fairmont, a subsidiary of CONSOL Energy Inc., has bought industrial suppliers. “There’s more activity than there was five years ago.”
Nationally, FactSet Mergerstat said there were 1,172 deals in the fourth quarter with a combined value of $62.57 billion, compared with 1,265 transactions at $153 billion in 2007.
“It’s a difficult period to complete transactions,” said Richard Stover of Wexford-based private equity firm Birchmere Capital. “My guess is, at least for the first two or three quarters of 2009, it’s going to be strange in ways we probably haven’t seen. I hope I’m wrong, but I don’t think I will be.”
Contrary to both BizBuySell’s and FactSet Mergerstat’s findings, Scott Mashuda, managing director of River’s Edge Alliance Group LLC, believes valuations are still high in southwestern Pennsylvania.
“There’s so much demand on the buy side,” said Mashuda, who is representing several would-be acquirers based outside Pittsburgh who are interested in purchasing companies here. “It’s a very good time because of buyer demand.”
“I’d call activity in the Pittsburgh market healthy,” said James Bauerle, director of legal and business services at Downtown law firm Keevican Weiss Bauerle & Hirsch LLC and principal of its investment banking arm, Renaissance Partners LLC. In fact, Renaissance’s business was up 50 percent over 2007, Bauerle said, including shepherding the sale of two private companies owned by Pittsburgh entities that closed in the fourth quarter. He expects to see more management buyouts backed by private equity in 2009 as companies are frustrated by the credit crunch.
“It’s the hidden alternative to downsizing or liquidation,” Bauerle said.
Mashuda agreed that management buyouts could be a bigger factor in the local market this year.
ptascarella@bizjournals.com | (412) 208-3832
