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M&A Environment in 2012

Erv Terwilliger, managing partner of 321 Capital Partners, LLC, provides a wide-ranging outlook for mergers and acquisitions in packaging and package printing.

March 2012 By Erv Terwilliger, 321 Capital Partners
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As investment bankers with more than 400 completed transactions, 321 Capital Partners is tasked with navigating the ever-changing waters of the mergers and acquisitions (M&A) world. Our expertise is based on an understanding of banking, buyers, sellers, general macroeconomic trends, and market knowledge, not to mention trends in bankruptcy law. The following is a real-world perspective, from the trenches, on the M&A outlook for 2012. As we lay this out, we are going to call on colleagues for insights in their respective fields, i.e., bankers, owners, buyers, and yes...lawyers.

Market

Uncertainty—though not at the same levels as the last few years—still rules the day. According to The Grant Thornton International Business Report, a Q3 2011 survey indicated the United States is suffering from a Business Optimism outlook of 8 percent. Essentially, this means that more business owners in the United States were pessimistic than optimistic in their outlook for the next 12 months. We anticipate that this lack of confidence in the U.S. will lead to increased M&A activity as U.S.-based firms reach into non-U.S. markets for market share and growth not available in a sluggish domestic market.

Emerging giants Brazil, Russia, India, and China (the BRIC countries) had Business Optimism Outlooks of 25 percent in Q3 2011. Businesses in these emerging markets will look to further invest in their native markets through capital improvements and potential acquisitions or mergers with technology leaders in more developed markets. The fact that the International Monetary Fund (IMF) projects mature markets to grow at 1.9 percent while emerging markets will grow at a 6.1 percent pace furthers our opinion that 2012 will bring a number of acquisitions or mergers aimed at capitalizing on the opportunities in emerging markets and the technology and intellectual property available in the developed markets.

Anticipate increased M&A activity as European companies, hit by the economic woes of Greece, Italy, Portugal, and Ireland, divest their non-cash-producing business lines. Cash rich companies will pursue strategic investments in businesses poised to capitalize on the emerging markets or opportunities to acquire American-based assets at discounted values.

Buyers

Businesses looking for growth will continue their push to increase sales outside the borders of the United States, as domestic growth remains anemic at best. GDP growth in the U.S. is projected at 2.7 percent for 2012, signaling that companies will most likely not attain substantial organic growth if their sales base resides solely in the United States. The recent announcement from the Federal Reserve on plans to keep the Fed window at or about zero percent until 2014 illustrates that the march back to prosperity will continue to be a slow walk. While improvements in key indicators show continued progress in the manufacturing sector, ongoing high unemployment and suppressed wages will translate into another year of lax domestic consumption. This is evidenced by the fact that we are producing as much as we did in pre-recession 2007 with six million fewer workers.

 

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