March 24, 2005

Investment banking firm Berkery Noyes is expecting B2B M&A (merger and acquisition) activity and their multiples to increase an average of 10 percent in the 2005 to 2006 period, according to the bank's recent report “Outlook Strategies.”

There are a number of converging factors coming together to form a “perfect storm” for M&A activity in 2005, according to the bank, among them healthy companies on the block, strategic buyers with money and private equity buyers ready to invest.

As the advertising market appears to be on the mend, expecting a 5 percent growth in b-to-b media sales, and as average trade show revenues are expected to grow 6 percent this year, b-to-b media companies no longer look to be flat earners in the coming years.

Major strategic buyers are still exercising caution, according to the bank, however these buyers have cash-rich balance sheets and will have to compete with private equity buyers who are currently jumping into the market. In the midst of increased interest in M&A, the lowest capital gains and income tax rates in recent memory are also helping to fuel the M&A market.

Many strategic buyers have shed their non-core assets, often at valuations higher than they'd expected. And now these buyers are looking for vertical acquisitions that will extend their reach into markets they already serve. Meanwhile, aggressive private equity buyers, awash with cash and feeling pressure to invest it, are expected to ramp up their acquisition activity thereby stepping up the multiples. Private equity buyers also may win over existing management with the option to stay in their current positions, as well as the ability to obtain a financial stake in the deal as well.

According to the Berkery, Noyes & Co. report, “In the confidential controlled auctions we've recently completed, and in those currently underway, there is an unmistakable trend unfolding; the universe of bidders is increasing with each transaction, and the valuation multiples they're offering are rising commensurately.”

The M&A buzz isn't confined to for-profit companies, according to the report. Berkery, Noyes & Co. handled a transaction in early 2004 to sell the National Roofing Contractors Association's trade show to a for-profit company. The bank says it expects to see more deals between associations and for-profits in 2005.

Source: Expo Web.com