M&A and Investment Activity Slows for U.S. Nutrition Industry
Jun 1, 2009 12:00 PM, By Rodney Clark and Bob Angus, Presidio Financial Partners
Given recent market turmoil and the recessionary environment, nutrition companies continue to have fewer finance options
The global financial and economic turmoil experienced in 2008 was of historic proportion. It caused governments to step in to prevent both systemic and corporate failures; entire industries to restructure; corporations of all sizes to rethink strategies and, at times, even fight for their very survival; and families to pare back expenses, shed assets and reduce their high levels of household debt. Amid this backdrop of broad financial turmoil, worsening corporate results and economic uncertainty, it is not surprising that M&A and investment activity slowed considerably in 2008 before grinding to a complete halt by the end of the year. For the full year 2008, total U.S. M&A activity decreased by a whopping 37% year over year, from approximately $1.6 trillion in 2007 to $990.5 billion in 2008, while the U.S. initial public offerings (IPO) market experienced a 31-year low. This low level of M&A and financing punctuated the end of the record-high levels of activity experienced in the years from 2005 to 2007 and likely marked the beginning of more measured activity for the foreseeable future.
The lagging effects of the U.S. and global financial industry meltdown and the recession have continued to be felt during the first five months of 2009. Credit markets have remained frozen and have shown little, if any, sign of thawing; consumer spending has remained at anemic levels; corporate results have continued to worsen with layoffs announced regularly; the pace of bankruptcies has increased; and capital markets have tested new lows as bad news after bad news has been absorbed by the financial markets. This has kept M&A and investment in the United States at historic low levels. During the first quarter of 2009, M&A activity in terms of the number of transactions was down close to 20% from the fourth quarter of 2008, which itself was a quarter of significantly reduced activity, and almost 36% from the year earlier period. In terms of volume, Q1 activity was up about 10% over the year earlier period, but was artificially high due to two healthcare mega mergers: Pfizer's $64.5 billion agreement to acquire Wyeth and Merck's $45.9 billion deal to buy Schering-Plough. Adjusted for these two transactions, M&A volume was off 67% to a meager $48 billion during Q1 2009. Absent the ability to secure debt to finance leveraged transactions, buyout activity by private-equity firms in Q1 fell to its lowest level since the fourth quarter of 2001.
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