By  on January 27, 2010

A surge in fourth-quarter mergers and acquisitions helped lift the value of middle-market M&A activity in the retail, apparel, footwear and restaurant industries last year.

A study by investment bank R.W. Baird & Co. said the number of deals valued at less than $1 billion in the sectors declined to 91 last year, down 20.9 percent from the full-year total of 115 in 2008. However, propelled by activity in the range of $100 million to $499 million category during last year’s final quarter, the value of those deals grew 32.5 percent to $9.29 billion from $7.02 billion in 2008.

In tracking deal multiples, Baird found a market leaning heavily in favor of buyers as the 2009 total came in at 6.6, compared with 7.8 in 2008 and 9.8 in 2007. The value was the lowest in any of the 12 years studied by Baird, supplanting the 2003 multiple of 6.9. Baird defines the multiple as enterprise value — equity plus debt minus cash — divided by earnings before interest, taxes, depreciation and amortization.

The increase in the value of deals within the four industries was attributable entirely to activity in the fourth quarter amid signs of an economic recovery. In the final three months of 2009, the number of deals rose to 24 from 22 in the previous year, but their value more than doubled, rising 125.3 percent to $2.84 billion from $1.26 billion.

It was essentially the middle of the middle market that pulled the numbers up. There were no disclosed deals in the $100 million to $499 million range in the fourth quarter of 2008, while those in its 2009 counterpart numbered eight with an aggregate value of $2.1 billion. Among these were Sally Beauty’s acquisition of Sinelco International, Billabong International’s purchase of Swell Inc., Genesco Inc.’s deal for Sports Fan-Attic Inc., Iconix Brand Group Inc.’s purchase of a stake in Mark Ecko’s brand portfolio and Li & Fung’s Wear Me acquisition.

The uptick supports the forecast of Joseph Pellegrini, managing director of Baird’s consumer retail team. Pellegrini said he expected a continuation of the flight to value in M&A, similar to the one going on with shoppers seeking bargains.

“It will be a mantra,” he said, noting that acquirers will remain selective and focused on companies for which their back-room savvy can provide immediate operating benefits. He’s also upbeat about the opportunities for a company such as Iconix to take acquired brands and give them new life by adjusting their distribution into markets more receptive to them.

“The days of making acquisitions for the sake of making acquisitions — that’s not working anymore,” he said.

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