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"If history repeats itself, and the unexpected always happens, how incapable must Man be of learning from experience."
— George Bernard Shaw
The number of Mergers & Acquisitions transactions is markedly lower than it was just 18 months ago, but the reason is only indirectly due to a weak economy.
Rather than consider selling their business in a slow economy, many owners of solid healthcare information and technology assets are on the sidelines, waiting for an improvement in overall market conditions before bringing their companies to market. Yet buyers—both strategic players with strong balance sheets and financial buyers with plenty of investable cash—are still looking for growth through acquisition. The result is constrained supply of available acquisitions, and pent-up demand among buyers.
According to historical patterns, the pace of M&A activity will increase as the economy picks up. As it does, more sellers will enter the market, offering buyers more viable acquisition opportunities, resulting in a rebalancing of the supply/demand equation. In this environment, fortune favors the swift.
The M&A Market Dynamics chart inevitably leads to the conclusion that both the volume and value of U.S. information industry mergers and acquisitions will ramp up in 2010 and sustain a robust pace at least through 2012 and continue at that level for several years. Why? Because it always has behaved that way following a rebounding economy, and despite the severity and unusual circumstances of the current recession, there's no reason to think it won't happen again.
Economists describe this pattern as a V-shaped recovery, where a steep downturn is followed by an equally steep rise in economic activity. Whether the recovery for the national economy charts a V, a W, or a U–all patterns championed by one or another economist—the M&A market has unfailingly responded to an improved economy with a sharp uptrend. We see the economy stabilizing and improving over the near term, with M&A activity rising markedly by mid-2010.
It happened in the 1980s with the so-called Reagan Recovery, and happened again in the mid 2000's following the dot-com bust. We're betting that it will happen again in 2010.
As we review our M&A Market Dynamics chart, it shows that the current slowdown in M&A transactions began in early 2008, just months after the frenzied peak in 2007 and the official start of the recession. It accelerated with the credit crisis of last summer, making 2008 the worst year for M&A activity since 2004, when a similar plunge in activity arrived on the heels of the dot-com meltdown and the post-9/11 economic contraction.
After bouncing along the bottom during the first half of 2004, the M&A market found its footing and began to pick up toward the end of the year. By 2005, fueled by loose credit and lots of cash generated by the tsunami of available capital, deal activity was building steam, driving multiples and total deal volume ever higher.
The cycle peaked in 2007 before falling off a cliff last year and, just like in 2003-2004, bouncing along the bottom at a much lower level of activity. While 2009 is nearly three quarters over, we expect the activity to trace a pattern similar to 2005, which started slow and gathered momentum through the second half.
The logic behind our prediction is fairly straightforward: sellers who have been on the sidelines waiting for valuations to climb back to the unsustainably high levels of the 2007 bubble will finally accept that current, sensible valuations are the “new normal” (actually, the old normal, since they are consistent with historically sound multiples of revenues and EBITDA). With few quality properties available for acquisition, buyers have been largely idled. Yet buyers still need to seek growth through acquisitions, and sellers still need exit strategies and access to growth capital, creating tremendous pent-up demand to do deals.
Conditions supporting the favorable M&A forecast include buyers' strong balance sheets–both strategic and financial players are sitting on sizeable pools of investable cash–and the eventual loosening in the credit markets. Lenders, after all, make money when they lend, and the pressure to rebuild capital to a level where lending can occur has been strong.
When sellers accept that 2007 is gone forever and the pricing bubble has burst, they will let go of their inflated expectations and begin to accept asset valuations that are strong by historical standards. We expect the trend to begin in the fourth quarter of 2009 and to consolidate in 2010 and 2011, with deal activity returning to the pre-bubble levels of 2005 and 2006.
In anticipation of a strong recovery in the M&A market, we're investing our own capital in expanding our firm's resources to handle the increase in dealflow. We're hiring senior investment bankers, beefing up our research and completing development of electronic transaction management tools that will significantly streamline our execution capabilities. This is how we profited and grew in past slowdowns, and we're sticking with that strategy this time around.
History will repeat itself in the years ahead, because it always does. Buyers and sellers will return to the marketplace, because they always do. Transaction advisors who anticipate this pattern will prosper from it, because we always have.
Propio Language Services a technology-enabled interpreting and translation service provider, announced the acquisition of Telelanguage, a Portland-based enterprise language service provider specializing in remote interpreting.
Telelanguage is a Portland-based enterprise language service provider specializing in remote interpreting. Founded in 1991, Telelanguage has a history of providing high-quality remote interpretation services for over 350 languages.
Founded in 1998, Propio Language Services is an industry leader in over-the-phone interpretation, video remote interpretation, in-person interpretation, and document translation services.
Narrow Gauge Capital, a private equity firm, has completed the acquisition of a majority interest in Inco-Check, a provider of software and end-to-end quality control, specialty audit, compliance, and reporting services for mortgage and consumer lenders and servicers.
Inco-Check is a provider of software and end-to-end quality control, specialty audit, compliance, and reporting services for mortgage and consumer lenders and servicers. IC leverages QC Ally, its proprietary, web-based platform to support all GSE, regulatory agency, and investor requirements.
Narrow Gauge Capital, based in Boston, is a private equity firm controlled by Adam Doctoroff and Travis Metz. NGC pursues buyouts and recapitalizations in growth-oriented businesses with strong management teams.
StoicLane, a long-term growth platform making investments in the Finance, Insurance & Real Estate (“FIRE”) verticals, has closed on a majority stake in appraisal management company Lender’s Valuation Services (“LVS”). LVS delivers appraisal management services to lenders, banks, mortgage brokers, credit unions, and financial institutions.
Lender’s Valuation Services (LVS) is a national appraisal management company delivering industry leading appraisal management services to lenders, banks, mortgage brokers, credit unions, and financial institutions. Founded in 2014, LVS is headquartered in California.
StoicLane is a Chicago-based long-term growth platform making controlling and strategic minority investments in the Finance, Insurance & Real Estate (“FIRE”) verticals. The firm works closely with its portfolio companies by harnessing the power of data and technology.
Gridiron Capital, LLC, an investment firm, is pleased to announce that one of its portfolio companies, Class Valuation, has acquired Pendo Management, LLC. Based in Kansas City, Missouri, Pendo offers a differentiated appraisal process with dedicated client success teams, automated workflows and experienced appraisers in unique coverage markets.
Pendo Management, LLC is a nationwide, technology-enabled appraisal management company serving the residential mortgage industry. The Company’s solutions assist residential mortgage lenders in managing the process of procuring property valuations required for the origination of mortgage loans.
Headquartered in Troy, Michigan, Class Valuation is a leading nationwide appraisal management company. The Company's proprietary technology enhances every aspect of the home valuation process and leverages advanced analytics and data to assess appraisal accuracy and regulatory compliance.
Class Valuation, a leading appraisal management company in the US, has acquired Synergy Appraisal Services, an appraisal management company providing valuation services for residential and commercial lenders. Synergy offers an array of residential valuations services for first and second mortgage production, forensic review, litigation, and more.
Synergy Appraisal Services is an appraisal management company providing high quality valuation services for residential and commercial lenders. Synergy offers an array of residential valuations services for first and second mortgage production, forensic review, litigation, loan QC, and more.
Headquartered in Troy, Michigan, Class Valuation is a leading nationwide appraisal management company. The Company's proprietary technology enhances every aspect of the home valuation process and leverages advanced analytics and data to assess appraisal accuracy and regulatory compliance.
ATTOM, curator of the nation's premier property database, announced it has acquired GeoData Plus, the leading application for in-depth property research, valuation, and prospecting tools. GeoData's clients are appraisers, real estate agents, investors, mortgage companies and tax reduction professionals.
GeoData Plus is a data source used by thousands of real estate professionals throughout the states of New York and New Jersey. GeoData's clients are appraisers, real estate agents, investors, mortgage companies and tax reduction professionals.
ATTOM Data Solutions provides premium property data to power products that improve transparency, innovation, efficiency, and disruption in a data-driven economy. The ATTOM Data Warehouse fuels innovation in many industries through flexible data delivery solutions.
Broadridge Financial Solutions, Inc., a global Fintech leader, announced that it has acquired the cloud-based Execution Compliance and Surveillance Service (ECS) assets from Jordan & Jordan. The solution provides a combination of surveillance and regulatory reporting as well as compliance consulting capabilities for US regulations.
The cloud-based Execution Compliance and Surveillance Service (ECS) assets from Jordan & Jordan provide a combination of surveillance and regulatory reporting as well as compliance consulting capabilities for US regulations.
Broadridge Financial Solutions, a global Fintech leader with over $4.5 billion in revenues, provides the critical infrastructure that powers investing, corporate governance, and communications to enable better financial lives.
Gresham Technologies plc specializes in providing real-time solutions for data integrity and control, banking integration, and payments and cash management, has announced its agreement to acquire post-trade automation specialists, Electra Information Systems, Inc.
Electra provides post-trade operations workflow solutions and data services for reconciliation, trade matching, settlement and fee billing to global institutional buy-side firms. Firms can quickly scale to business demands and gain value from their patented technology across the post-trade process.
Gresham Technologies plc is a leading software and services company that specializes in providing real-time transaction control and enterprise data integrity solutions. Gresham’s Clareti software platform is designed to provide financial institutions with complete certainty in their data processing.
