Tuesday, November 6, 2012

Riverside: What M&A Slowdown? - Deal Journal - WSJ

Riverside: What M&A Slowdown? - Deal Journal - WSJ

No one seems to have told Riverside Company that the M&A market is in the dumps...

Interesting details. It appears that buyout companies with a clear strategy, continue to make acquisitions, regardless of the macroeconomic indicators that most investors tend to over-analyze. Targeting $200M > companies can make buyout firms appear acquisitive, but with cost of capital so low (including equity risk premium hovering around 6%), it wouldn't be impossible to have most LBO's with an all in cost of capital of ~5% - 7%. 

Assuming a 5 year projected growth rate of 5%, constant or light capex and sticky revenue, the next three years will present tons of opportunities to acquire distressed assets, boring companies (packaged food distributors, etc) or over-inflated companies (when you factor in historic interest rate lows and low cost of equity).

Middle market companies should be wise to accept offers - the helicopter ride will not last for long...

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