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Experts Predict Distressed M&A Opportunities Will Rise as Assets are Deeply Discounted
July 2009
According to a Survey from Carl Marks Advisory Group
For Immediate Release
Media Contact: Cheryl Seredy, Falls Communications
(216) 472-2385 | cseredy@fallscommunications.com
July 2009 (New York) – The current economic downturn is likely to bring a significant increase in business acquisitions over the next several months, as greater discounts on distressed assets become increasingly available, according to a survey led by Carl Marks Advisory Group LLC (CMAG), the corporate revitalization and investment banking firm headquartered in New York, in conjunction with Pepper Hamilton LLP, a multi-practice law firm that specializes in mergers and acquisitions.
A cross section of 75 financial professionals, including investment bankers, private equity practitioners, hedge fund investors and lawyers, were surveyed during the second quarter of 2009 concerning the current state of distressed M&A and the forecast for the months ahead. Ninety-two percent of respondents said they believe distressed assets will be more deeply discounted going forward than during previous economic slumps, as more companies fail to meet debt obligations and find the need to quickly shed their resources.
Debt-related issues are a major contributing factor for the rise in distressed M&A activity. Triggering many distressed asset sales are companys’ inability to service debt, as well as the inability to refinance impending maturities. Survey experts saw a surge in covenant defaults as another contributor to anticipated asset sales.
“The overall lack of liquidity in the market and resulting compressed time frame to implement strategic alternatives and required operational changes are driving down prices,” said Duff Meyercord, a CMAG partner. “In the short term, the ability to quickly provide liquidity is likely to be a primary consideration for both buyers and sellers. In other words, cash is again king.”
Companies will seek a variety of solutions to manage debt, depending on the situation. The most common, according to respondents, will be covenant amendments. Covenants with rate increases, as well as those with both rate increases and lowered availability, are widely used solutions to resolving debt.
The lack of liquidity has led to a higher than normal number of reorganizations taking place in and out of court. The most common transactions in the upcoming year are expected to be Chapter 11 reorganizations, sales outside of bankruptcy and Section 363 sales.
Few respondents said they anticipated exiting a distressed investment in the months ahead, with 65 percent expecting to retain distressed investments in the near term.
“Given low current valuations, we were not surprised to see that few people are planning a near-term exit,” said Meyercord. “The real question is whether their liquidity will allow them to hunker down and ride out the storm.”
The highest volume of distressed asset sales over the next year is expected to be in real estate (63 percent of respondents), followed by financial services (38 percent). The same holds true for the highest distressed deal values, with real estate favored by 56 percent of respondents and financial services again receiving a 38 percent response.
“The distressed market has seen a lot of activity this past year,” said Meyercord, “and we expect that it will be even busier during the next 12 months as the landscape for distressed investing becomes even more fertile.”
For the complete survey results, please visit www.carlmarks.com/cmag_research.aspx.
About Carl Marks Advisory Group LLC and Carl Marks Securities LLC
Carl Marks Advisory Group LLC, with offices in New York, Vienna, Va., and Charlotte, N.C., provides a wide array of investment banking and financial and operational advisory services to the middle market, including mergers and acquisitions advice, sourcing of capital, financial restructuring plans, strategic business assessments, improvement plans and interim management.
Carl Marks Securities LLC, based in New York, assists its clients in executing private placements of debt and equity. The firm is a member of FINRA and SIPC. Additional information about Carl Marks Advisory Group LLC and Carl Marks Securities LLC is available at www.carlmarks.com.
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