Click the links below to find recent stories:

For more information about George, contact him at or click on the image below.













2007 another record-breaker for M&As despite slowdown.

The region put up big numbers even though the dealmaking slowed down by the end of the 3rd quarter.


Published on March 7, 2008 in the Philadelphia Business Journal.

Available cash and aggressive lending during the first six months allowed the region to hit record numbers for mergers and acquisitions in 2007 despite the credit crisis that struck with force midyear.

While the overall economic uncertainty has dampened dealmaking activity since the start of the year, industry insiders believe that the region will continue to remain active because of its abundance of stable, middle-market companies.

Last year, more than $1.6 trillion changed hands in 11,219 deals across the nation, up from $1.5 trillion in 10,679 deals the year before, according to financial information provider Thomson Financial. Worldwide, Thomson tallied more than $4.48 trillion in dealmaking activity last year, up from $3.8 trillion in 2006.

Closer to home, companies in Pennsylvania and New Jersey were buyers or sellers in 1,153 deals last year with disclosed transactions valued at $144 billion, an increase from 1,119 deals worth $132 billion in 2006 and 1,017 deals worth $117 billion in 2005, according to FactSet Mergerstat, a global provider of mergers and acquisitions data based in Santa Monica, Calif.

"It's still a very strong market for sellers, but we're seeing a balance now," said Richard Jaffe, a partner at Ballard Spahr Andrews & Ingersoll and president of the Philadelphia chapter of the Association for Corporate Growth, or ACG, an association of companies and service providers active in mergers and acquisitions. "From the legal side, the agreements are becoming more balanced."

Valuations are softening, Jaffe said. Getting debt has become much more expensive and lenders are requiring much more equity, a definite change from the past three years.

"The banks are more risk averse and they're concerned about what's happening in the credit markets," said Jaffe. "They always pull back at that point."

This year, local ACG members, who handle acquisition transactions for companies nationwide, reported handling 550 transactions valued at nearly $100 billion. That compares with 622 deals worth $94 billion in 2006, and 368 deals worth about $23.5 billion in 2005. The Philadelphia chapter counts deals involving members in Pennsylvania from Harrisburg to Delaware, and New Jersey below Princeton.

As the borrower-friendly, less restrictive, "covenant-lite" environment fades away, private-equity players are likely to see greater competition for deals from strategic buyers, experts said.

Mitchell Hollin, a partner at Philadelphia-based LLR Partners and past president of the ACG's Philadelphia chapter, said, "In some ways, the strategic buyers were getting pushed aside by some of the more aggressive financial buyers who were able to pay more for those properties based on what kind of leverage they could raise."

Last year's biggest deal in the region was the take-private transaction of Aramark, valued at $8.09 billion. That deal was announced in 2006 but closed last January.

Private-equity firms bought Genesis HealthCare Corp. of Kennett Square for about $1.4 billion and $475 million in assumed debt. Affiliates of Lee Equity Partners LLC acquired Philadelphia-based Deb Shops Inc., retailers with 337 shops in 42 states, for $390 million.

Favorable terms made such deals possible for financial buyers but by the third quarter of last year, the lending valve was nearly shut off.

"The private-equity side had lots of ability to raise very significant amounts of debt to leverage their equity and that gave them a lot of buying power," Hollin said. "The large financial buyers are pretty much absent from the market now."

During the fourth quarter of 2007, financial buyers accounted for 10.8 percent of area transactions, compared with 18.9 percent in the fourth quarter the year before, according to Howard Snyder, vice president at Philadelphia-based investment bank Curtis Financial Group.

Largely because of the impact of the sub-prime mortgage crisis, Snyder continued, local M&A volume dropped 21.5 percent from the second to third quarters last year.

"There is a propensity to run around and say the sky is falling," Snyder said. "Although deal flow dropped significantly in the third and fourth quarter, the primary culprit has been the private-equity groups. You still have a significant amount of activity on the strategic side because a lot of the strategic buyers are not as dependent upon the capital markets to highly leverage the businesses they are acquiring."

Scott Heery, a partner in the transactions services division of global accounting firm KPMG, reported that during the first six weeks of 2008, deal value on a national level was down about 50 percent. Deal volume, however, was only down about 5 percent.

"That is largely because there are fewer big ticket deals and mega-fund buyouts," Heery said. "It's really not volume based. It's really more the size of the deals that are actually getting done."

Regionally, he reported, deal volume is down around 10 percent or 15 percent for the first six weeks of this year.

"There's definitely no looking at the M&A market through rose-colored glasses anymore," Heery said.

As senior lending becomes less available, more mezzanine funding comes into play. That may help insulate the area, which is rich in middle-market companies that are reaching "succession planning" stages.

"As people age, they will often want to monetize their investment," said Michael DiPiano, a general partner of NewSpring Ventures and the managing partner of NewSpring Capital in Radnor. "There really appear to be some people who have solid business models who have built up nice, tangible products and revenue streams that are either profitable or close to profitability."

NewSpring's mezzanine fund has already closed one deal this year, and has four deals in the pipeline.

"We've been run over with interest in the last 60 days," DiPiano said. "It's been very, very strong."

He expects to close four to six deals in that fund in 2008, compared with six deals last year and four in 2006.

"If you own a private business, it's twice as valuable as it was three or four years ago," said Patrick Hurley, managing director at MidMarket Capital Advisors in Philadelphia. "If you've got a good business that is making $10 million in profit, that business is going to sell for $75 or $80 million."

This climate is ideal, he said, for selling to companies who will invest in maintaining them rather than simply maximizing profits.

"It's not a crappy market if you sell to a large industrial buyer who won't tear apart your business," Hurley said. "Anyone who owns a strong business today will find a welcome buyer."