The experts within our Basic Industries Group maintain ongoing contact with a wide range of knowledgeable sources to stay abreast of the issues and trends that could impact the industry’s M&A climate or otherwise influence our clients’ businesses. Following are a few of the topics addressed in our most recent Basic Industries Review, which is published quarterly.
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BASIC INDUSTRIES REVIEW (2010: Q2) (View complete report)
Thoughts from the Group
There is reason for optimism, although economic recovery is proving to be rockier than earlier anticipated. Despite some troubling recent economic data such as housing starts, employment and sovereign debt levels, the overall trends are positive. Middle market companies in the Basic Industries are increasingly confident in the recovery, as evidenced by increased capital expenditures and expectations of restaffing. Our clients are consistently experiencing increases in backlogs and orders, leading to improved forecasts for the second half of 2010. Obtaining debt capital to resume idled operations or execute growth strategies remains challenging and advising clients on capital raising and refinancing engagements continues to be a larger portion of our business than prior to the recession.
M&A Review and Outlook
Although slightly below first quarter, second quarter transaction activity remained relatively robust, increasing 38.6 percent over the second quarter of 2009. From April 1 though June 24, 2,832 transactions were either announced or closed, with a total aggregate value of $200.8 billion, versus 2,043 transactions with an aggregate value of $139.2 billion over the same period in 2009. This is on the heels of the first quarter’s reported 2,950 transactions with an aggregate value of $198 billion.
According to recent Federal Reserve data, non-financial companies are holding in excess of $1.8 trillion dollars of cash and other liquid assets on their balance sheets, representing approximately 7 percent of all company assets (the largest percentage since 1963). Private equity groups are also flush with cash and are facing an unpalatable option of returning their investors’ capital if not deployed. Typically, private equity funds agree to invest capital within five years or return it to investors. As of the end of 2009, private equity groups were sitting on $280 billion of undeployed capital. Of this, over $51 billion must be used by the end of 2011, according to alternative asset research firm Preqin.
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Transactions: View our closed transactions
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THE HARDWOOD SAWMILL MARKET – A TIME FOR CONSOLIDATION (View complete report)
Executive Summary
The housing and building products industries have struggled as housing starts have fallen from a peak of 2.3 million (seasonally adjusted annual rate) in January 2006 to an annual pace of approximately 550,000 for 2009. In particular, the hardwood market has been especially hard hit over the last few years. The general end markets for the hardwood industry are the construction industry (furniture, flooring, cabinets and millwork), industrial commerce (pallets and railroad ties) and exports. These industries have experienced significant difficulty (both structural and cyclical) during the recent recession.
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