M&A action rebounding in St. Louis
Twice as many local business owners buying as selling so far this year

Mergers and acquisitions are starting to bounce back in St. Louis and nationally.

After two great years in 2006 and 2007, sales and purchases of businesses slumped along with the economy in 2008 and 2009. Now, business isn’t wildly better, but it is better, M&A professionals report.

Sixteen St. Louis businesses were sellers in the first quarter this year, compared with 15 in the first quarter last year, 14 in the first quarter of 2008, and 28 in the first quarter of 2007, according to The Fortune Group, an investment banking firm that tracks sales in the metropolitan area. The number of St. Louis companies that were buyers in the first quarter was more dramatic — 28, up from 18 in the first quarter of 2009. Buy and sell transactions here totaled 112 in 2009, down from 189 in 2008. The Fortune Group does not have total numbers for earlier years.

“We’re seeing some nice improvement, and we think that will continue in the last half of 2010,” said John Hull, a Fortune Group director.

Many owners have put off selling their businesses the last couple of years in the hope that sales prices would bounce back. Now they are reconsidering because of expected tax increases under the Obama administration, said Vince Garozzo, a mergers and acquisitions lawyer at Greensfelder, Hemker & Gale.

“What is now a 15 percent tax rate may go to 28 percent or higher next year,” he said. “That means the federal government will consume a larger percentage of the sale price.” Greensfelder expects to work on about 10 M&A transactions this year, double the number it did in 2008 and 2009, Garozzo said. That’s still way down from the 20 to 25 deals it shepherded in 2007.

Nationally, too, deal makers are far more optimistic than they were a year ago. Eighty-five percent of them predict an increase in M&A activity in the next six months, according to a twice-yearly survey by the Association for Corporate Growth (ACG) and Thomson Reuters. A year ago, only 56 percent predicted an increase.

The M&A professionals expect the most activity in health care and life sciences, manufacturing and distribution, financial services and technology. Almost 700 investment bankers, private equity professionals, corporate development officers, lawyers, accountants and business consultants participated in the ACG survey, which was conducted in March and April.

Pritchard Osborne Equity Ventures in Clayton has a division that specializes in sales and purchases of home health-care businesses, and it’s thriving compared with a year ago, said Scott Osborne, managing principal. The firm, which does business nationally, is working three buy-side projects, compared with one a year ago, and six sell-side projects, compared with three a year ago.

“We will close six home-care deals in 2010, compared with three in 2009,” Osborne said. “We have four people dedicated to this industry vertical versus two a year ago.”

Deborah Douglas, managing partner of The Douglas Group investment banking firm, said she is even seeing an uptick in the downtrodden home improvement market. “We have one middle-market seller who is a distributor of home improvement products who was up 38 percent in sales for the first quarter of 2010, compared with the first quarter of 2009,” she said. “It’s a nice early sign that makes us hopeful.”

Another reason the M&A professionals expect an upward trend is that baby boomers are reaching retirement age and wanting to sell their businesses, but they have held off because of the recession. They can’t hold off forever, Douglas said, noting that the Exit Planning Institute has estimated that 8 million business owners will need to sell over the next 15 years.