Terry Minnick, whose Molding Business Services focuses on deals for small and midsized companies, thinks mergers and acquisitions should start to pick up this year, after a “very tough” stretch from late 2008 through 2009.
“I think there's going to be a lot of activity in the next 18 months,” Minnick said. “The only way it could not happen is if the economy doesn't continue to improve.” He said there's a “huge backlog of deals.”
Minnick, of Florence, Mass., started MBS in 1998. The firm's M&A advisory services cover plastics processors with between $5 million and $25 million in annual sales, although Minnick said the “sweet spot” is $5 million to $10 million.
MBS has completed more than 40 M&A transactions. Minnick uses contacts and experience from his career of 30-plus years in plastics. He owned Pro Corp., a custom molder in Florence, selling it in 1994. MBS also does executive recruiting.
Mega-deals make the headlines. But plenty of smaller plastics companies are available, such as when the founder retires. While big private-equity outfits buy and sell all the time, for small-company owners, selling a company is usually a once-in-a-lifetime event, Minnick said.
Some deals are getting done, but all M&As got hit by the recession and credit crunch that dried up financing.
“There are three roadblocks that we've identified, and bank financing is probably the biggest,” said Andrew Munson, Minnick's partner at MBS. “It's difficult. Banks are looking at everything with a microscope and they're going through the numbers with a fine-tooth comb. They scrutinize every part of the transaction.”
Minnick called it a “perfect storm” that has slammed M&A: tough financing, buyers lacking money, and, for companies that are available, sales and profits are down.
Munson said the first quarter of 2009 was the worst, thanks to a major “valuation gap” between buyers and sellers. Owners still thought their companies were worth the same as 2007 and 2008, before the recession. “But you had no buyers with any cash, and the credit markets were totally frozen,” he said.
It was the Grand Canyon of valuation gaps. Sellers wanted too high a price. Buyers expected bargain-basement prices.
Munson said that gap is closing, now that sellers realize they need to cut the price and buyers are more optimistic about an economic recovery this year. “Things are still tough right now, but we've got plenty of pent-up demand. We're starting to see light at the end of the tunnel,” he said.
Minnick said deals will come even for automotive suppliers, an industry that has been in “complete disarray.”
“But you have to be creative. People are beginning to talk about automotive again,” he said.
Huge deals seem to always get done, even in a downturn. But Minnick said increased M&A activity among smaller companies could signal an economic recovery, as companies are willing to take risks to make acquisitions.
“That's really the canary in the coal mine — when you see $5 million or $10 million companies getting sold. That's a real indication that credit markets are loosening up,” he said.
Copyright 2010 Crain Communications Inc. All Rights Reserved.