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Credit Crunch Slows M&A Activity

Merger and acquisition activity remained muted in November.

Merger and acquisition activity remained muted in November, leaving the value of deals executed so far this year in the consumer products sector down almost two-thirds, a new report said.

This story first appeared in the December 29, 2008 issue of WWD.  Subscribe Today.

In its monthly analysis of middle-market M&A transactions, the investment banking department of Robert W. Baird & Co. Inc. said there were 10 deals executed in November, although eight of them were for undisclosed prices. The two reported acquisitions totaled $57 million in value, 88.1 percent below the $482 million changing hands for the six disclosed in November 2007. Including sales for which the amounts weren’t disclosed, there were 13 transactions in the year-ago month.

During the first 11 months of 2008, there were 162 acquisitions, 53 of them with disclosed values, down from 183 and 63 with disclosed values in the comparable period during 2007. The value of the disclosed deals dropped 65.6 percent to $11.94 billion from $34.68 billion, and the average price declined 59.1 percent to $225.2 million from $550.5 million a year ago.

Baird characterized November’s levels as an increase over the “very slow months of September and October,” based principally on a lower level of decrease last month. The value of reported deals in September was $16 million, dropping 96.1 percent from the year-ago month, and those closing in October totaled $17 million, falling 99.5 percent from October 2007.

“From Baird’s discussions with consumer products suppliers across all categories, the major theme over the past three months is cash conservation and, very often, the inability to make acquisitions due to the lack of debt availability in the market,” the report said. “Numerous strategic consolidators note that acquisition targets are plentiful [particularly small, struggling suppliers] but buyer balance sheets preclude taking advantage of the available M&A opportunities.

“That being said, smaller [sub-$100 million] acquisitions that require less cash and involve much less risk than larger, transformational transactions are still occurring.”

Among the November deals cited was Quiksilver Inc.’s sale of its Rossignol ski business to Chartreuse & Montblanc for 40 million euros, or $50.9 million. The original purchase agreement, reached in August, called for a 100 million euro selling price but was discounted because of the worldwide credit crunch. Upon closing the transaction, Quiksilver retained Morgan Stanley to aid it in the search for additional financing.