Columbia West Capital News
04.18.07 Value of Ariz. mergers, acquisitions jumps, The Arizona Republic

Jane Larson
The Arizona Republic

It may be a tough time to sell a house in Arizona, but if you own a midsize business and are looking to cash out, you're in luck.

The value of mergers and acquisitions for companies headquartered in Arizona jumped 18 percent last year - to $11.8 billion, from $10 billion the year before - according to Columbia West Capital LLC's latest Arizona Deal Survey.

Given the existing pipeline, the Scottsdale-based investment bank expects activity this year to be even better.

"It remains very much a seller's market and is an excellent time for shareholders to be seeking liquidity or raising capital," Columbia West partners say.

For sellers, the strong market means high valuations, lots of interested buyers and quick transactions, Managing Director Guy Downing said.

Buyers might have a harder time finding deals with attractive returns, though cheap debt can make up a lot of the difference, he said.

Downing and crew came to their conclusions by sorting through a national database of transactions. They screened for those headquartered in Arizona, stripped out real estate deals and stripped out companies with less than $10 million in revenue.

While the results might not hold for a mom-and-pop shop, they still show us what's driving the market and what smaller businesses might expect when they grow up.

Among Columbia West's survey findings:

•  Sellers continued to seal deals at the rate of more than one a week. The number of deals disclosed rose to 58 last year, up from 55 the year before.

•  Sellers are getting more for their businesses. The average deal size in 2006 rose to more than $200 million, up from $181 million the year before. Those figures, however, are skewed by the $1 billion-plus transactions involving RSC Equipment Rental Inc. and Aztar Corp. last year and US Airways Group Inc. the year before.

•  The market remains strong for transactions worth less than $1 billion. Some 56 transactions in that category closed last year, worth $5.2 billion, the same as the year before. The median deal size was $32 million.

•  Activity was especially strong in construction services and home building, software, technology and health care.

Valuations nearing 10-year high

So what's behind this strong market?

Columbia West attributes it to historically low interest rates, aggressive providers of senior debt, and a surge in private equity capital.

The valuations buyers place on companies isn't shabby, either. Valuations are at or near their highest levels in more than 10 years, in some cases 20 to 40 percent higher than during the economic lows of 2002, Columbia West said.

The firm says last year also was a good time to be raising private equity for an Arizona company with sales of $5 million to $300 million a year.

$500 million equity placements Of the 28 private equity placements the survey reviewed, the total increased 125 percent during the year, to more than $500 million.

That included the $130 million Goldman Sachs Group Inc. arranged for Tempe-based Limelight Networks, and the $50 million invested in Scottsdale-based JDA Software Group Inc.

The survey is part of Columbia West's efforts to raise its profile in the Valley.

Downing, an Arizona State University grad, and co-founder Kevin Fechtmeyer, a University of Arizona grad, both had careers on Wall Street before the lure of Arizona proved too much to resist.

They founded the bank with partner Kaley Parkinson to focus on midsize companies in the Southwest that they believe the giant investment houses overlook.