2015 Corporate Finance – Our Perspective

PNWA Managing Director Jeff Hoyt (jeff.hoyt@pnwa.com) reports that M&A activity in 2015 set a new record, surpassing 2007.  Mid-December global announced deal volume was $4.35 trillion globally.  Factors driving this high level of deal volume include increasing global competition, slow organic growth in the domestic economy, high public market stock valuations of acquirers, and ample access to both debt and equity capital markets.

Middle market activity has been robust as well albeit with differing drivers, including generational transition , often leading to sales of private middle market companies.  Also,increasingly onerous reporting and financial requirements of becoming a public company dissuade many from considering going public, particularly “old economy” companies and industries.

One example is Dannaher’s announced spinoff of Fluke, Tektronix, Kollmorgen and several others into a new company, Fortive Corporation, based in Everett.  The spinoff will immediately create a new public company, which will likely target small add-on acquisitions to complement existing businesses. The business case for the spinout is to separate Fortive’s slower growing but still profitable businesses from the remaining faster growing medical and technology  businesses, which tend to have higher market multiples in public equity markets (Danaher acquired Fluke in 1998).

A private market sector example is Haggen Foods.  After their private equity infusion (resulting in majority control), Comvest Partners undertook a transformative acquisition,  growing the size of the company almost eightfold and expanding the footprint into California, Arizona and Nevada as well as growing the Oregon store base.  Unfortunately the expected synergies did not materialize and this fall the added debt load pushed the combined company into bankruptcy less than a year after acquisition .