Middle Market Merger Pros Believe M&A Volume May Have Reached Bottom Say it's a Buyer's...

Middle Market Merger Pros Believe M&A Volume May Have Reached Bottom Say it's a Buyer's Market

ACG-Thomson Reuters Mid-Year 2008 DealMakers Survey Results
NEW YORK--(Business Wire)--
The latest twice yearly survey of middle market merger
professionals by the Association for Corporate Growth (ACG) and
Thomson Reuters reveals frustration with the current M&A environment,
but cautious optimism for the next six months.

According to the ACG-Thomson Reuters Mid-Year 2008 DealMakers
Survey, the percent of middle market mergers and acquisitions
professionals who say the current M&A environment is good or excellent
has dropped precipitously to 43% from 93% 12 months ago. The figure
was 72% in December 2007.

The more than 500 investment bankers, private equity
professionals, corporate development executives, lawyers, accountants
and business consultants polled say the greatest obstacle to M&A
activity is the weak economy (45%).

According to Thomson Reuters, the volume of all worldwide mergers
and acquisitions totaled $1.6 trillion in announced deals during the
first half of 2008, a decrease of 36% over the record-breaking first
half of 2007. Of this total, M&A deals in the mid-market, defined by
Thomson Reuters as transactions under $500 million, fared better. Less
reliant on the global credit markets, they declined only 18.2%, with a
total value of $368.9 billion.

Despite the decline, 32% of survey respondents say the number of
M&A transactions will increase in the second half of 2008, up from
only 25% six months ago, perhaps signaling a market bottom.
Twenty-eight percent say merger volume will decrease, while 39% say it
will remain the same.

"The middle market dealmaking environment has slowed, but good
deals continue to get done, and some merger pros are expressing
optimism that the pace of dealmaking may have hit bottom and could be
flat to up a little over the second half of the year," said Harris
Smith, ACG Chairman and Managing Partner of Strategic Relationships at
Grant Thornton. "The middle market has always been less reliant on
debt to fund deals, and many private equity firms and strategic buyers
have a lot of equity to draw on for minority or majority investments."

A notable finding of the survey is the emergence of a buyer's
market. Respondents indicated that the balance of power between buyers
and sellers of businesses was upended over the last year, with 68%
saying it is now a buyer's market, 11% calling it a seller's market,
and 21% saying they are unsure. In June 2007, 75% said it was a
seller's market, 13% a buyer's market, and 12% were unsure. The shift
was evident in December 2007, when 39% said it was a buyer's market,
33% said it was a seller's market, and 28% were not sure.

"It has taken a long time for the pendulum to swing, but market
conditions clearly favor the buyer, and this is one of the most
significant changes we've seen," said Jim Beecher, Publisher of
Buyouts Magazine, a Reuters Media publication. "It can take a while to
realize profits, but private equity performance can thrive in an
environment such as this. For the right acquisitions made at a more
reasonable price, there will be big gains to be made once the economy
rebounds."

Other points of optimism revealed in the survey include an
increase in the last year to 76% from 52% of M&A professionals who say
the debt markets will improve in the next six months. Also, dealmakers
point to distressed deals (29%), good multiples for acquirers (25%),
and large capital reserves of some acquirers (21%) as facilitators of
M&A.

"We have seen a multiple contraction of between a turn and a turn
and a half in the middle market," said Michael Gibbons, Senior
Managing Director & Principal, Brown Gibbons Lang & Company. "Seller
price expectations are slowly adjusting to the new market climate.
However, there is still plenty of money for, and interest in, good
businesses in the middle market. The dry powder in the hands of
private equity ensures at least a reasonable level of activity in this
difficult market."

Private Equity Firms' Greatest Threats, Best Strategies

The survey is particularly focused on private equity, and among
private equity respondents, over the next six months, most expect the
deal pace to stay the same (43%), with 30% expecting more deals, and
27% expecting less.

Private equity professionals say today's greatest threats to their
business are: the credit crunch (54%), overall economy (50%),
competition with other private equity firms (29%), possible tax
changes on carried interest (26%), and regulatory scrutiny (22%).

The aspects of their jobs that are the most difficult now are:
securing debt for transactions (45%), winning and closing good deals
(41%), identifying good investments (38%), fund raising (25%), and
exiting investments (24%).

"As it relates to new platform company acquisitions, private
equity groups are being more selective, doing more due diligence and
working harder to secure attractive financing," said Mark Jones, 2008
ACG InterGrowth Chair and Partner, River Associates Investments, LLC.
"That said, the private equity industry continues to have substantial
cash reserves that need to be invested. Even in a slower growth
economy with choppy debt markets, seasoned private equity investors
continue to aggressively pursue high quality companies with the
knowledge that smart buys can be made in any economic environment."

Nearly one-third (32%) of private equity professionals expect to
deploy their latest fund less quickly than they originally planned,
while 55% expect to be on pace, and 13% anticipate a faster deployment
of capital.

Nearly one-third (28%) are adjusting their investment strategy,
while 72% are not. The best strategy for success in the current
environment, according to private equity pros, is: stick to their
original strategy (55%), focus on their portfolio companies (44%), cut
costs at their portfolio companies (22%), diversify geographically
(19%), diversify by industry (17%), sit it out and wait for a better
investment climate (11%), cut costs at their firm (8%), and focus on
their Limited Partners (6%).

According to survey respondents, geographically, the best
investment opportunities are in the United States (48%), China (12%),
Latin America (8%), India (7%) and Eastern Europe (6%). The most
attractive industries for investments are manufacturing and
distribution (23%), healthcare/life sciences (19%), and business
services (13%).

"To an ever-increasing degree buyers and sellers are looking
beyond the water's edge for opportunities," commented Dennis J. White,
ACG Vice Chairman and Partner, McDermott, Will & Emery LLP. "The U.S.
downturn and depressed dollar make everything from New York condos to
U.S. companies seem like bargains to foreign buyers. Conversely, U.S.
buyers are drawn to the attractive upside opportunities and less
competitive investment environment that prevails in many markets
overseas. As a result, "cross-border" has become a permanent part of
everyone's deal vocabulary."

Survey Methodology

The bi-annual survey, conducted in June 2008, was completed by 542
ACG members and Thomson Reuters customers. Respondents were comprised
of private equity, venture capital and buyout firm members (21%);
investment bankers, intermediaries, brokers (28%); lenders, finance
providers (10%); corporate professionals, entrepreneurs (15%); and
service providers, such as lawyers, workout specialists, accountants
and consultants (26%). The majority of respondents were from the
United States (453), where 39 states were represented.
Internationally, executives from 21 countries completed the survey.

About ACG

Founded in 1954, the Association for Corporate Growth (ACG) is a
global association for professionals involved in corporate growth,
corporate development, and mergers and acquisitions. Today ACG stands
at more than 12,000 members from corporations, private equity,
finance, and professional service firms representing Fortune 1000,
FTSE 100, and mid-market companies in 53 chapters in North America and
Europe. For more information, please visit www.ACG.org.

About Thomson Reuters

Thomson Reuters is the world's leading source of intelligent
information for businesses and professionals. Thomson Reuterscombines
industry expertise with innovative technology to deliver critical
information to leading decision makers in the financial, legal, tax
and accounting, scientific, healthcare and media markets, powered by
the world's most trusted news organization. With headquarters in New
York and major operations in London and Eagan, Minnesota, Thomson
Reuters employs more than 50,000 people in 93 countries. Thomson
Reuters shares are listed on the New York Stock Exchange (NYSE: TRI);
Toronto Stock Exchange (TSX: TRI); London Stock Exchange (LSE: TRIL);
and Nasdaq (NASDAQ: TRIN). For more information, go to
www.thomsonreuters.com.

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