Columbia West Capital News
04.24.09 Valley bankruptcies up significantly from 2008 to 2009, Phoenix Business Journal


Valley bankruptcies up significantly from 2008 to 2009
Excerpt from Phoenix Business Journal

A soft real estate market continues to drive Phoenix companies out of business as mergers and acquisitions dry up amid poor credit conditions and a tepid investment climate.

In the first quarter, 46 companies filed for Chapter 11 reorganization or Chapter 7 or 13 bankruptcy, up 44 percent from the same period last year, according to the latest data compiled by investment bank Greene Holcomb & Fisher LLC.

A Chapter 11 filing allows a business to reorganize while receiving protection from creditors.

The Phoenix office of Polsinelli Shughart PC is swamped with 25 to 30 pending Chapter 11 cases, including Tempe home builder Fulton Homes Inc. and Phoenixbased ILX Resorts, which operates eight of its 11 vacation properties in Arizona.

“That’s a huge increase compared to 2008,” said Jack Hebert, who heads the firm’s bankruptcy department.

The real estate market declined even further in fourth-quarter 2008. Because the Phoenix market is so heavily reliant on the real estate sector, when it crashes, other businesses are swept away in the aftermath.

On the M&A front, Phoenix deals plummeted 59 percent, from 34 in first-quarter 2008 to 14 in the first quarter of this year.

GHF Managing Director Paul Javnick said financing M&A deals is tough right now. It’s difficult to get credit for deals of $500 million or more, which rarely occur in midsize markets such as Phoenix, because private equity firms can’t access debt to buy companies. In many cases, they’re opting for minority ownership instead.

Small deals also are getting squeezed.

To exacerbate matters, consumer services, high-end restaurants and some other sectors are struggling to survive as consumers watch their spending.

“Those kinds of deals are really struggling,” said Javnick, who splits his time between Phoenix and the firm’s headquarters in Minneapolis.

“There’s life in the market,” he said, but “it’s sector by sector.”

Scottsdale-based Columbia West Capital LLC is seeing a surge in business,particularly in strategic buys.

“We’re actually seeing a pretty strong market right now,” said Guy Downing, co-founder and managing director.

Strategic buys typically are carried out by well-capitalized companies in the same or a complementary industry. Many of these players have been chased out of deals or priced out of the market during the past three to four years, but conditions have shifted in their favor.

“We think ’09 is going to be relatively strong,” Downing said.

Guy Downing is a co-founder and managing director of Columbia West Capital, an investment bank based in Scottsdale. He can be reached at (480) 664-3905 or at gdowning@columbiawestcap.com.