Columbia West Capital News
06.16.08 M&A and Private Equity 2007 Recap


According to Columbia West Capital's annual Arizona Deal Survey, M&A transactions disclosed for companies headquartered in Arizona grew from $13.1 billion to $39.9 billion in 2007, an increase of 205% over 2006. This volume increase, over an already very strong 2006, was driven by both an increase in the number of deals as well an increase in the average deal size, thanks largely to the $27.9 billion Phelps Dodge transaction. The number of disclosed deals also increased to 98 deals from 75 deals and the average deal size increased to over $407 million from $175 million, in 2007 and 2006, respectively.

However, a few large transactions (Phelps Dodge, Swift Transportation, Giant Industries and eFunds in 2007 and RSC Equipment Rental, ShopKo Stores and Aztar in 2006) skewed the statistics and obscured the true middle market nature of Arizona M&A. Including only transactions under $1 billion, disclosed 2007 M&A transactions still remained strong, growing 7.1% to $5.8 billion from $5.4 billion in 2006. The average deal size in 2007 was $61.3 million and the median deal size was $15 million on 94 deals, down from an average $74.8 million and median $26.0 million on 72 deals in 2006, demonstrating that unit volume, not average middle market deal size, drove 2007 growth. (click here to see details)

In 2007 there was a very notable shift in sector performance, with Oil & Gas, Telecom, Business Services, and Transportation/Logistics growing a collective $8.4 billion, while Construction Services & Home Building was off an astonishing 95% and Consumer & Retail was off a staggering 82%. The strong economic fundamentals, low interest rates, and aggressive acquisition financing of 2006 have given way to subdued valuations, "hung" financing obligations and more of a buyer's market in 2007. As a result, we believe there will continue to be a marked curb in activity for substantially larger transactions which rely on heavily on the syndicated debt markets which continue in disarray. That being said, we believe that the middle market debt market (which generally doesn't rely on the syndicated debt markets) will remain liquid and efficient which should provide ample support to finance the typical Arizona deal. Thus, for the true Arizona middle market companies, we anticipate that although valuations have come off the lofty peaks achieved last year, valuations still remain attractive by historical standards, liquidity and financing remain available, and M&A activity should remain viable and strong throughout the remainder of 2008 and into 2009.

Private Equity funding for middle market companies (transaction size between $5 million and $300 million) in 2007 continued to be strong with 29 Private Equity placements in Arizona, representing a unit volume increase of 7.4% and a dollar volume increase of 95% to over $970 million from $497 million. This total included two separate transactions for iCrossing for an aggregate $95 million and, in what may be a sign of the times, over $700 million in private capital raised by public companies. While some of these transactions are for smaller micro-cap companies (the "typical" PIPE candidate), a large portion represents larger companies unable to find attractive financing sources given the current condition of the public capital markets. Private placement unit and transaction volume has remained high in the first half of 2008.

In all, we continue to be optimistic about Arizona and expect Private Equity transactions to continue to grow in line with Arizona's overall economic expansion.

For more detail please see our Arizona Deal Survey and call us at (480) 664-3949.