Business Slump Spurs Sellouts And Mergers

 

Mergers and acquisitions of small companies rose significantly during the first quarter of 1981. "It's almost become a natural reflex to sell out when the economy goes bad," says Alexandra Reed, editor of Mergers & Acquisitions -- The Journal of Corporate Venture.

"It's not just that the big fish is gobbling up the little fish," Reed comments, "but that the little fish wants to swim right into the big fish's mouth."

In the first three months of 1981, 319 acquisition announcements were made for privately held companies, almost 100 more than were made a year earlier, according to W.T. Grimm & Co., a mergers and acquisitions intermediary. The total number of announcements rose to 599 from 411 during the same period last year. Grimm estimates tht 70% of the 1,899 deals announced last year involved the acquisition of firms with sales of $25 million or less.

The acquisition process may accelerate further now that Dun & Bradstreet has created a subsidiary called Mergex Inc. to compile data on privately owned companies that might be suitable for acquisition. Art Rogoff, vice-president and general manager of Mergex, says his staff is analyzing D&B's data base of 4.75 million companies to provide "oine-stop shopping" for both buyers and sellers. Mergex reports are now available on 425,000 companies, 413,000 of which are privately held. The reports list a company's standard industrial classification, net sales, net profits, profit margin, net worth, return on net worth, location, and number of employees.

Some other trends in acquisitions:

Acquisition prices were down 6% in 1980 over 1979 prices, according to Walter Jurek, publisher of the Acquisition/Divestiture Weekly Report. Jurek says the average company in 1980 sold for 10.7 times its net after-tax earnings, 59% of its annual sales, and 1.51 times its net book value.

Foreign acquisitions rose 50% in the first quarter of 1981 when compared to the same period last year, W. T. Grimm says. Andrew Clapp, editor and publisher of mergers and Corporate Policy, says foreign purchases are increasing because the United States is considered relatively stable, currency exchange rates are favorable, and foreign investors are often more willing than Americans to take minority interests and retain current management.

The acquiring companies surveyed by Mergex made an average of 2.6 purchases, after considering an average of 82 deals, over the past two years.

A rise in the prime lending rate is usually followed by a corresponding reduction in a company's sale price, says James J. Mahoney, publisher of the National Review of Corporate Acquisitions. Mahoney dismisses fears that acquisitions will produce too much concentration of ownership."The crop of small businesses is like a forest," Mahoney says, "it's self-replenishing."