Good Deals to Be Done in 2009

We are experiencing interesting times in M&A. Almost every piece of data published indicates a negative projection for M&A in 2009. For the most part, popular belief is that 2009 will stink. The crazy thing is that I think 2009 will actually be a great year to buy companies, and for the first time in a long time the playing field has shifted.

The losers in the M&A market over the last decade have been mid–sized companies looking to make good strategic acquisitions. Over the past few years, these mid-sized players have been outbid by larger competitors, PE firms, and everybody else who had access to cheap capital and fewer requirements for the deal to really make sense. Mid-sized companies have been frustrated by the “constraints” under which they have had to operate, namely doing deals that made long-term strategic sense, were financed conservatively and that actually worked financially.

We hear familiar themes from financial buyers these days – VCs are really pulling in the reins and PE is still active but really looking to buy dimes for nickels with no leverage available. In 2009, the ray of hope is for corporate buyers, particularly mid-sized public companies. Not all but most of these corporate buyers have strong balance sheets, have been early to cut costs and have a clear strategic vision. For the first time in nearly a decade, this group of buyers has the upper hand when it comes to M&A.

Today, deals are taking longer than in the past few years, but this has allowed for “strategics” to stay up. In addition, the current economic decline and stock market turmoil has taken some pressure off short-term results, encouraging and supporting longer-term thinking and planning.

To be sure, prices are coming down. However, if you are selling a company today, you want to be talking with a buyer who is concerned with more than just deal structure and exit multiples. You want someone who is betting their long-term success on the deal.

Some very robust and resilient M&A deals will get done in 2009 – deals which will be fair to both the buyer and seller and they will certainly stand the test of time. My bet is that small to mid-sized corporate buyers will be at the center of many of these M&A transactions.

Tim McMahon is a Managing Director at Covington Associates. He can be reached at 617-314-3950 or