Ohio M&A activity picking up after two lackluster years

RICK ADAMCZAK | Daily Reporter

Published: 12/01/2010

Following a couple of moribund years it looks like there's growing activity among buyers and sellers of companies. "In the last quarter it's come back like a banshee," said Emmet Apolinario, president of the Ohio Business Brokers Association.

That's certainly welcome news for an industry battered by the recession that started in 2007 when many investors lost money and had none left over to buy companies. Those who did have cash or credit remained quiet, wary of the economy's future.

Apolinario, in fact, said membership at the Ohio Business Brokers Association has plummeted more than 40 percent since the start of the recession.

But the mergers and acquisitions landscape has brightened in recent months as worries about the economy have calmed.

"(Next year) is looking pretty bright," said Apolinario. "It will be an improvement from 2010. Investors are coming out of the woodwork who we've never heard from before, who had their money on the sidelines."

He attributed the boost in activity, at least in some part, to the passage by Congress of the Small Business Jobs and Credit Act of 2010.

Signed into law by President Barack Obama in September, part of that law includes enhanced U.S. Small Business Administration loans that are 90 percent guaranteed by the federal government. The law gave the SBA $14 billion in additional funding for banks to loan to small business owners.

In the first week of the Jobs Act, the SBA has stated it provided nearly 2,000 loans totaling nearly $1 billion in lending support.

"The dealmakers are really taking advantage of this, especially the smaller ones since it's for (loans) of $5 million or less of value," said Apolinario. "We were cued up for it, so when it hit things were busy."

The SBA loan provisions, however, expire Dec. 31 and money available for the program could even dry up before then, he said.

The outlook for 2011 will depend somewhat on whether those loan provisions are extended beyond Dec. 31, said Apolinario.

"It depends on what the fed does. We're hoping it's renewed," he said. "If it's not renewed lending will still happen, deals will still happen, but not at the hectic pace we've seen."

He said there's a "perfect storm" that's making smaller deals very popular, with some unemployed workers or Baby Boomers who are looking to buy small businesses.

Existing and established franchises are popular targets for investors, especially those in the service industry, but not so much in the food sector. Environmentally friendly industries and technology companies should also see an increase in mergers and acquisitions activity in the coming months, Apolinario said.

Meanwhile, larger deals are happening, most notably at the local level.

Dublin-based Cardinal Health's announcement Monday that it's acquiring Chinese pharmaceuticals distributor Zuellig Pharma for $470 million. Earlier in November Cardinal Health announced it had agreed to buy Kinray Inc., a pharmaceuticals distributor based in New York, for $1.3 billion.

"They're coming into 2011 with an appetite for bigger companies," said Apolinario. "We're going to see growth among the (larger acquisitions) because there's a lot of pent-up energy."

Several national and even global predictions confirm Apolinario's assessment that mergers and acquisitions activity is picking up.

According to a survey conducted by Thomson Reuters and Freeman Consulting Services, the 150 people polled expect deals to rise by 36 percent worldwide to $3.04 trillion in 2011, the highest figure since the $4.28 trillion recorded before the credit crunch and banking crisis started in 2007.

The Ohio Business Brokers Association is a non-profit corporation founded in 1987. The group helps align prospective business buyer with businesses that are for sale.

Copyright © 2010 The Daily Reporter - All Rights Reserved


View the article on the Daily Reporter website HERE.

Displaced Execs Fueling Deals for Small Businesses

Mergers & Acquisitions

Displaced Execs Feling Deals for Small Businesses

Business First of Columbus - by Robert Celaschi For Business First

The market for buying and selling businesses is heating up.

The number of closed transactions reported to BizBuySell.com nationwide jumped in the second quarter. The San Francisco-based online marketplace for businesses tallied 1,106 transactions, up from 1,040. To put the numbers in perspective, the volume is about half what it had been in 2008, said BizBuySell, an Internet marketplace that has 700,000 visitors looking for business opportunities each month.

The market has buyers, especially for smaller businesses.

“In the last two or three years, there are corporate executives displaced, underemployed and unemployed. They are wanting to take control of their destiny through business ownership,” said Emmet Apolinario, president of Columbus business brokerage International Resource Group and president of the Ohio Business Brokers Association.

Clay Baker is one such buyer. An executive in mortgage banking for 16 years, his career took a turn along with the mortgage industry in 2007. He had savings, but not enough to retire. Besides, he said, mortgage banking didn’t look very good on a resume at that time.

“I recognized the only path to get back to the income level I was accustomed to was to own a business,” Baker said.

He did his research, and worked with Apolinario to buy a Fastsigns franchise.

Making signs and banners didn’t interest Baker that much, but he saw an opportunity.

“The previous owner was ... not that actively involved,” Baker said. ”I figured with a little sales and marketing, there should be an opportunity to grow this business.”

In the first nine months, revenue grew about 25 percent, he said. Then the recession hit, and revenue dipped a few percent in 2009. This year it is holding steady.

With revenue on a plateau, he’s considering whether to buy a second business.

“I think there could be opportunities, and I might be mitigating some risk factors by acquiring something completely different than the sign business,” he said.

Which brings up one of the factors putting the brakes on deals.

“We are running into buyers who want to buy, but we have trepidation from the banks,” Apolinario said.

Baker can testify to that. When he applied for financing in the spring of 2008, he got approval within 30 days, he said.

"Had I gone about this in October of 2008, I wouldn’t have been able to get financing. That’s how much things changed in six months,” he said.

Smaller deals are easier to finance, according to BizBuySell. But bigger deals still get done, said Frank Wisehart, business advisory services director for Schneider Downs & Co. Inc. in Columbus. His office has seen a pick-up in calls for M&A due diligence work.

The most active market comes from companies with revenue between $10 million and $100 million. He said banks have cleaned up bad loans and are able to put up more money this year, he said.

The other challenge is dismal performance. Because of the way business valuations are calculated, a company that had a lousy 2009 would fetch a lower selling price this year. On the other hand, sellers are looking at higher capital gains taxes if they wait until 2011, Apolinario said.

Wisehart said companies that have downsized have returned to profitability and are seeing more sales.

“Manufacturing and technology seem to be improving,” he said. “Nearly everyone agrees the market will turn positive. The question is when that occurs or what event triggers the tipping point. ... I think economic prognosticators were caught flat-footed by the recession, and no one wants to wrongly predict an extended positive growth period.”

Robert Celaschi is a freelance writer.