The Diligent Deal

Hunt Greene thinks that the mergers and acquisitions (M&A) industry is slowly returning to normal. “But it’s a new normal,” he says.

As managing director of the Minneapolis-based investment bank Greene Holcomb & Fisher for the past 15 years, Greene saw both the exceptional growth of M&A activity from 2001 to 2007 and the sharp slump that began in the fall of 2008. “The M&A industry went through a bubble of its own,” he says, “so what looks like a depressed market by 2006 or 2007 standards is really just normal.”

Others in the M&A world agree. Larry Gamst, managing principal at DS&B in Minneapolis, a company that assists buyers and sellers in the M&A process, sees some important loosening of credit markets, “but it’s still hard for all buyers to find loans.” Without the ability to easily leverage a purchase, Gamst notes, the M&A market probably won’t see 2007-type activity any time soon. Dudley Ryan, a principal at accounting firm LarsonAllen in Minneapolis, has seen several up-and-down cycles in his 30 years of M&A work. “2007 was definitely a peak,” he says, with 2008 and 2009 being definite valleys. The industry recovers with the economy, he also says, so no one should expect 2010 to be like 2007 just because it’s a lot better than 2009.

Boom Times and Slow Times

According to Bruce Engler, head of the M&A practice at Minneapolis law firm Faegre & Benson, the M&A industry boomed after 2001 with the explosion of electronic communications and the growth in the number of private equity groups with significant capital. “The number of deals increased rapidly, and the time it took to make a deal happen decreased rapidly,” he remembers. Over the next few years, with interest rates at historic lows and lots of industries performing well, the supply of companies to buy increased but the demand for them increased even more. Valuations went up, and even when a price was settled, sellers could usually negotiate highly favorable terms for themselves. “In some cases, it was a race to the contractual bottom as buyers competed with one another,” Engler says. “There were even some deals where sellers were able to eliminate nearly all post-closing warranty and indemnity clauses.” And because sellers could demand that deals close quickly, buyers could not be as thorough in their due diligence.