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Mid-market banker sees stronger second half for M&A

  • Dealmaking gaining traction
  • GPs putting capital to work
  • Inflation could be in the cards

”The pipeline is as strong as it has ever been as we look forward,” Howard Lanser, managing director in Baird’s mergers and acquisitions group, told Buyouts. ”The lack of deals was true at the beginning of the year, but that is quickly correcting itself. In the second half, we believe everyone’s going to be busy pushing to close deals currently in the pipeline before year-end.”

Private equity funds raised between 2010 and 2012 may be due to reach the end of their five-year investing periods by 2015 to 2017—providing more incentive to do deals, Lanser said. ”With private equity funds expiring, trillions of corporate cash on balance sheets, and access to low-cost debt, there is a need and a drive to put capital to work.”

While the quest for deals may continue to drive buyout valuations, Lanser said the environment differs from 2007 and 2008, the last time purchase price multiples spiked to similar levels.

“Compared to 2007, 2008, underlying corporate balance sheets are in much better order and the lenders are much more solidly capitalized,” he said. “The big question is on the fiscal policies and the monetary policies, and the ability for fundamental economic growth to offset the withdrawal of liquidity from the Fed and gridlock in Washington.”

Inflation remains a concern as the Federal Reserve pares back its quantitative easing program, he said. 

”All eyes are on the Fed for creating this liquidity entity that has propped up the market and they have to make sure it doesn’t turn into a monster,” Lanser said. ”If things go well, we will see deal announcements accelerate throughout the year. The activity is across the board (all sectors). That’s a sign of a good recovery. M&A is under discussion in most board rooms as boards feel confident in their own growth prospects and are seeking to accelerate growth through M&A.”

Through June 20, mid-market deal count this year, including sponsored and strategic acquisitions, climbed 4.1 percent to 1,568, from the same period last year. Dollar volume rose to $161 billion from $132 billion, according to Dealogic data, as cited by Baird. 

Some of Baird’s recent deals include the sale of Smith System Driver Improvement Institute to Levine Leichtman Capital Partners; Ametek Inc’s $280 million acquisition of Zygo Corp; and the sale of TASI Holdings to Berwind Group.