Perspectives – Marc Cooper – June 2022

A Resilient M&A Market Heralds Positive Things to Come

by CEO Marc S. Cooper

What do we hear during the relentless 24-hour news cycle? Speculation on the potential impact of US monetary policy, concerns over inflation, and increasingly negative investor sentiment from wild stock market swings are all topics du jour. Couple those with the war in Ukraine and ongoing political strife, and it is hard not to feel overwhelmed and anxious over the endless market chatter.

All of this precipitates a general sense of unease, a focus on an impending recession, and thoughts of what else is to come. And yet despite all of this, I’m optimistic about the outcome of what is an otherwise stormy outlook because I see promising activity in the M&A market. In fact, it may be better than people think.

Although the current M&A market has trailed the anomaly of 2021’s record performance, we’re seeing several instances of decidedly promising activity across multiple industries. The continued strength in M&A can truly function as a bellwether, certainly for businesses and even for the broader economy.

In Q2, we saw several businesses take advantage of tough times to grow stronger by engaging in opportunistic and even, in certain cases, hostile M&A:

  • JetBlue and Frontier Airlines battling each other to acquire Spirit Airlines
  • Prologis announced an acquisition of Duke Realty for $26 billion in an all-stock transaction
  • Optum is acquiring LHC Group, the home care company, for $6.4 billion
  • Prime Therapeutics announced an acquisition of Magellan Rx Management, a pharmacy management company, for $1.35 billion

Private Equity is also aggressively deploying capital from an estimated $1.5 trillion war chest of dry powder.

  • The value of take-private deals in 2022 is the highest we’ve seen since 2007, topping $121 billion from January to May. The number of take-privates is nearly 50% more than the same period last year. Equity market turmoil has made public companies once deemed “too expensive” for acquirors now appear relatively attractive.

Our firm has advised on several significant transactions involving private equity in the last 6 months:

  • Apollo has agreed to acquire Cardenas Markets, one of the largest Hispanic grocery chains in the United States, from KKR
  • Ridgemont Equity Partners announced their acquisition of Crete Mechanical Group, a leading provider of HVAC, electrical, plumbing, and building automation services to various end markets
  • Audax Private Equity has acquired Thermogenics, a North American provider of boiler service and maintenance, equipment sales, and rentals
  • Morgan Stanley Capital Partners acquired Fairway Lawns, a market-leading provider of residential lawn care services
  • York Capital Management announced a strategic investment in Healthcare Linen Services Group, a Midwest and Central United States focused healthcare laundry service provider
  • The Save Mart Companies, a California regional grocer, was sold to Kingswood Capital Management

What’s more, the strength of the private debt market is driving increased activity and, in many cases, displacing the need for traditional public market financing. We’ve seen both Elliott (in its acquisition of Nielsen) and Thoma Bravo (in its acquisition of Anaplan) successfully tap the private debt markets for multi-billion dollar financings. This is a game-changer – particularly when you contrast it to when markets were last on the cusp of a major downturn in 2008.

This is not to say that it will all be smooth sailing. If there’s one thing the markets dislike, it’s uncertainty. But as we weather this near-term volatility, it is important to remember that just about everything works in cycles. While the immediate outlook and pundit sentiment may be dour, I trust that the resilience in the M&A market signifies things aren’t as negative as they seem.

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