S.C. had big M&A moves in 2013 and on the horizon
A look back at the world of mergers and acquisition this year shows M&A activity on the rise after a few years of less activity. Conditions are better than they’ve been in a long time for making big moves that can change the game for a business or even an entire industry. Companies in the Upstate and other parts of the state took advantage of the friendly environment, but overall South Carolina could do better at making acquisitions part of a growth strategy.
Uncertainty about possible tax law changes led to a push in M&A activity at the end of 2012. That led this year off to a slow start.
In general, the M&A market was down 20 percent in the first half of the year when compared with 2012, and Southeastern states mirrored that trend. Just three of the 24 deals in South Carolina valued at $10 million or more occurred in the first half of the year. The full picture will be available next month.
Industries that are more insulated from political and economic instability saw more action. The top five this year were technology, industrial, energy, health care and consumer goods.
Valuations have increased, and that’s a positive for sellers, said Hagan Rogers with Watermark Advisors, an investment banking and advisory firm.
South Carolina sold more companies than it bought this year. That’s not uncommon, said Rogers, but it’s not ideal. When ownership leaves the state, so does the capital that had been flowing through the local economy. Of course, the reverse is also true.
He said the biggest barrier to companies growing and staying in the state is more cultural than financial.
“I think that’s one of the cultural shifts we want to see in South Carolina,” Rogers said. “There’s a little bit of a culture here of growing your company and then selling it and you’ve hit a home run.”
He said companies commonly consider selling when they have reached $20 to 30 million in revenues. That is an admirable and hard-to-achieve accomplishment, “but why not take your company to the next level?” Rogers said.
Although we talk of mergers and acquisitions, true mergers of equal partners are rare. In reality, somebody’s buying and somebody’s selling.
“That’s one interesting thing about M&A,” said Henry Gallivan, mergers and acquisitions and corporate finance attorney with Smith Moore Leatherwood. “There are so many things to look at based on how the company operates. You hope that you won’t find anything, but often if you dig enough you’ll find something that merits much more attention from both sides.”
Stock deals can be less complicated, but asset deals can have complications. What’s more, many companies in this market are smaller, privately held companies with their own accounting practices, requiring extra scrutiny.
“From our experience, this year has been a better year for M&A activity than the last couple of years,” said Gallivan.
Gallivan said business owners at companies of all sizes are expressing more optimism. A general feeling that volatile political issues like the debt ceiling are getting under control, and continued low interest rates make for a prime atmosphere for M&A activity. And even though they are being very diligent about what kind of risks they will take, banks are more willing to lend, Gallivan said.
Rogers said this year’s deals have shown banks requiring more private equity to make a deal happen – a little more than half of the price.
Still, money remains relatively cheap at the moment, and a shortage of great companies in the market has banks actively looking. A solid company with a bright future will have no problem finding a buyer, the experts say.
Getting in the Game
South Carolina lagged in such activity this year compared to its neighbors. The state is literally surrounded by M&A action with Georgia, Florida and North Carolina being the most active markets in the Southeast, according to Watermark’s analysis from multiple data sources.
But that doesn’t mean there’s nothing happening. S.C. investors have begun reaching out as far as the North Dakota’s Bakken oil field, where Rogers said his firm helped 20 Upstate investors get in the oil game with with a stake in Colorado-based Coachman Energy.
“Reaching out into S.C. to finance growth of drilling in the Bakkens, I think that’s new. We’ve never seen the oil industry reach into S.C. in this way,” he said.
In these last few weeks of 2013, the business of buying and selling business continues, and a few more announcements next week would not be surprising. Experts are expecting favorable conditions to continue into 2014, which perhaps will be the year for South Carolina to really get into the game.