The buyers' market will strengthen in 2009, say Sharon Geraghty and Phil Brown in The Globe and Mail

Buyers Rule in M&A Arena

January 01, 2009

In a shift that will shape M&A transaction in 2009, buyers have gained the upper hand for the first time in four years, according to Torys' special edition bulletin, Top 10 M&A Trends for 2009.

An M&A boom that began in early 2005 saw potential buyers struggling to keep up with soaring competition and asset prices for companies that regularly commanded multiple bids. The global credit crisis has now dramatically shrunk the ranks of asset buyers, while many companies are facing falling market values and are having trouble finding financial lifelines.

This means that those who want to sell their companies will find themselves working much harder to keep potential buyers at the table, says Sharon Geraghty. "We've seen a buyers' market emerge, and we think that will just become stronger and stronger over time." Buyers forced to jump through hoops early to seal a deal last year should now be able to shift more risk onto the seller, she adds. This includes agreements that will better protect them in the event of potential problems in the economy or with their lenders. Sellers have also become more willing to enter into exclusive negotiations, a rarity during the M&A boom.

This shift in favour of buyers is unlikely to lead to a deal-making frenzy in 2009, but institutions with cash on hand are expected to emerge from the sidelines to start searching for deals.

Falling share prices mean sellers have been adjusting their expectations downward, making them more attractive to potential buyers and more likely to accept lower prices than they were a year ago, says Philip Brown. "One of the things we've seen right through the boom is this huge disconnect between what a buyer thinks a company's worth and what a target thinks. I think what we're going to see in the next year or so is those views being aligned in most cases, and targets recognizing that their price really has dropped."

Torys' Top 10 M&A Trends for 2009 bulletin also predicts that going-private deals, which slowed in 2008, should come back to life over the next two years. Distressed sales will increase and there could be a jump in hostile deals. Those with cash, including Canadian pension funds and global sovereign wealth funds, are poised to take advantage of buying opportunities.

To read the full article, published December 30, 2008, click here.

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