Columbia West Capital News
03.21.07 M&A and Private Equity very strong in Arizona 2007 M&A expected to exceed 2006 levels


According to Columbia West Capital’s annual Arizona Deal Survey, 2006 M&A transactions disclosed for companies headquartered in Arizona grew from $10.0 billion to $11.8 billion, an increase of 18% over 2005. This volume increase, over an already very strong 2005, was driven by both an increase in the number of deals as well an increase in the average deal size. The number of disclosed deals increased to 58 deals from 55 deals and the average deal size increased to over $200 million from $181 million, in 2006 and 2005, respectively.

Three large transactions (RSC Equipment Rental and Aztar in 2006, US Airways in 2005) skewed the statistics and obscured the true middle market nature of Arizona M&A. Including only transactions under $1 billion, 2006 M&A transactions disclosed for companies headquartered in Arizona remained very strong, but essentially the same as prior year at $5.2 billion. The average deal size in 2006 was $92 million on 56 disclosed transactions and the median deal size was $32 million.

The continued and growing strength in M&A was driven by strong economic fundamentals including historically low interest rates, an abundance of liquidity in the debt markets, aggressive Senior Debt providers (which increasingly replace mezzanine capital), and a surge in the amount of private equity capital available for transactions. Certain sectors experienced especially strong M&A activity in Arizona including the construction services/home building, software, technology and healthcare sectors.

The real driver behind the strength in the M&A market has been the increased valuation levels for deals, which remain at or near the highest levels in more than 10 years. Certain sectors are experiencing multiple premiums of as much as 20- 40% over the low point in the cycle in 2002. It remains very much a seller’s market and is an excellent time for shareholders to be seeking liquidity or raising capital.

As a result, we expect 2007 Arizona M&A activity to exceed the impressive levels achieved in 2006. More than half of the CEOs attending our Southwest CEO Summit last fall expected to explore M&A alternatives in 2007. In addition to the strong fundamentals, the 2007 activity is feeding off a large existing deal pipeline. The transactions announced in 2006 which are expected close in 2007 are already double the total volume for 2006.

Private Equity funding for middle market companies (sales between $5 million and $300 million) in 2006 was also strong with 28 Private Equity placements in Arizona, representing a dollar volume increase of 125% to over $500 million. This total included 21 deals in the technology and life sciences sectors, including high profile transactions for Limelight Networks ($130mm led by Goldman Sachs) and JDA Software ($50mm with Thoma Cressey). We believe this reflects a growing pool of talent and opportunities in Arizona’s technology landscape. We expect Private Equity transactions to continue to grow, in line with Arizona’s overall economic expansion and increasing sophistication of its business community.

If you would like more detail on our Arizona Deal Survey, please feel free to call us at (480) 664-3949.