One on One with Steven Bernard, M&A Dir. Market Analysis at Robert W. Baird
Monday, March 19, 2007SUZANNE PRATT: Joining us now to talk about all the M&A activity that we've been experiencing this year is Steven Bernard. He is director of M&A market analysis at Robert W. Baird in Chicago. Steven, welcome.
STEVEN BERNARD, DIR., M&A MARKET ANALYSIS, ROBERT W. BAIRD: Thank you. Good evening.
PRATT: We're on pace for another record here for M&A activity. What is behind this tremendous volume?
BERNARD: Well it's been a couple of issues. The two primary ones which you alluded to are the corporate appliers are very active benefiting from basically a favorable economy and, therefore, strong stock prices and also private equity firms are sitting on record amounts of money. They've been extremely active. We've also seen an increase in global activity. Those three things are really driving the M&A activity that we've seen. We expect this to continue.
PRATT: Tell me about all this private equity money that we're seeing. Why are we seeing so much now and how does it compare to previous years?
BERNARD: The private equity firms have raised a record amount of money and basically they've been very active. They've been able to compete effectively with the strategic buyers in terms of making acquisitions and basically the investors that are in the private equity funds, limited institutional investors see that they are putting together favorable returns and that's driving more money into the private equity funds. They've been very aggressive in terms of being able to make acquisitions primarily due to the very liquid debt markets. Even though interest rates have gone up, it's not how much interest you're paying. It's how much money the bank is going to give you and the favorable environment right now has indicated that the debt markets are very favorable and private equity firms have taken advantage of that to do acquisitions.
PRATT: Is it all private equity? It's only actually a portion. It just sounds like it is because we see so many headlines dominated by private equity firms.
BERNARD: Private equity firms are making headlines by buying what used to be or what are S&P 500 names, household names. They're still a small portion of the overall market but they've been increasing. They are about currently 10 to 15 percent of U.S. volume in terms of the number of deals and about 25 percent of the market in terms of dollar volume. So corporate and strategic appliers are still the dominant ones but you are seeing these headline-making transactions from the private equity firms just because of the sheer size of a lot of the transactions that have been announced and household names, for instance, the Servicemaster transaction that you alluded to earlier.
PRATT: What about all the volatility that we've seen in the stock market lately? Is that something along with the problems and the concerns about the sub-prime mortgage market that would be likely to derail some of this M&A activity?
BERNARD: Not in our opinion at least in the short term. The volatility really doesn't impact M&A activity in the long run. Really these transactions are being done for long-term strategic purposes. So some short-term volatility is not likely to derail the current pace of activity, but if we were to see a very long, sustained decline in the market, not just volatile up and down but just a sustained period of down or a significant shock to the market such as a 9/11 type event, that could be enough to derail M&A activity. But just the volatility in and of itself right now is not likely to have a major impact in our opinion.
PRATT: OK. Let's leave it there. My guest this evening Steven Bernard, director of M&A market analysis at Robert W. Baird in Chicago.
BERNARD: Thank you.
