Through the third quarter, IPOs, acquisitions and merger deals already exceed all of 2009.
The dealmakers are back and heading for their best year of capital raising and mergers & acquisitions since the country plunged into recession in late 2007.
"The economy is better than we think," said veteran Minneapolis investment banking firm owner Hunt Greene, noting that confidence in the capital markets usually leads to expansion and hiring. "Businesses are doing better, generating cash and investing in acquisitions to grow. ... Company valuations are rising, and some are thinking it's time to sell their business. There are incentives for buyers and sellers."
News this month that St. Jude Medical will spend more than $1 billion to buy heart-plug device maker AGA Medical and that 3M Co. will spend a billion or so on upcoming acquisitions underscores that corporations are slowly starting to spend their record hoards of cash. There also is a possibility that long-term federal capital gains rates, now 15 percent, may rise to 20 percent in 2011, which could hurry some deals into closing by yearend.
There were 2,296 acquisitions announced in the third quarter, nearly a third more than the 1,750 deals announced in the third quarter of 2009. The 2010 third quarter deal volume was $210 billion, up 77 percent from the year-ago quarter, according to data-collector Dealogic.
"Things are getting better and will continue through the fourth quarter," said Bruce Engler, head of the national mergers-and-acquisition practice for law firm Faegre & Benson, which hosts its annual M&A Conference this week.
Valuations are rising
The prices paid for private, healthy companies, the majority of transactions, have risen steadily to seven, eight and nine times operating earnings (EBITDA).
"I've seen even higher multiples in pharma and medtech for good companies by strong buyers," Engler said. "But we're not back to 2006 valuations yet. The lenders are warming up. They are a lot better than 12 months ago. And 18 months ago we might as well have stayed at home."
Around the nation, there have been 7,681 acquisitions announced through the first nine months of this year, more than reported in all of 2009 (7,327) or 2008 (6,728), according to Dealogic and Star Tribune research. Minnesota firms report 171 deals through the first three quarters of this year, compared with 152 deals in all of 2009.
Lazard, including its middle market group based in Minneapolis, closed 24 mergers for midsize companies -- an improvement over the second quarter. Combined, Lazard's deals totaled more that $5.4 billion and the clients stretched from Plano, Texas, to Singapore.
U.S. companies spent about $615 billion during the first nine months acquiring other companies, up 7 percent in dollar value from 2009, according to Dealogic.
More U.S. companies are likely to sell stock to the public for the first time through initial public offerings this year than last. And about a quarter of the deals involve Minnesota underwriters such as Piper Jaffray, Craig-Hallum and Northland Securities. The 82 IPOs so far this year far surpass the 49 for all of 2009.
The improving stock market also prompted 370 U.S. companies, including 33 in Minnesota, to raise additional equity this year. That trend, which started in the second quarter of 2009 as market valuations turned northward, slowed in the third quarter. Nearly 600 U.S. public companies raised capital through secondary stock offerings as stock valuations rose in 2009. Only 267 raised equity in 2008.
Piper Jaffray had 11 deals
Minneapolis-based Piper Jaffray, which has a reach that stretches as far as Israel and China, was the most active local stock underwriter in the third quarter, participating in 11 deals.
The largest was Smart Technologies of Canada, which hauled in $660 million.
Piper's co-heads of investment banking were on the road last week and unavailable for comment.
Regional investment bankers Craig-Hallum and Northland Securities are heading for record underwriting years and are adding bankers, research analysts and others.
Craig-Hallum has been the managing underwriter of 17 equity offerings over the last year, raising more than $850 million. Craig-Hallum opened a Boston office as it expanded its research coverage to 200 public companies.
The firm's biggest deal was a September stock offering that raised more than $100 million for California technology company Entropic Communications.
Rick Hartfiel, head of investment banking at Craig-Hallum, said its small-capitalization stock conference in New York this month drew an overflow crowd of 200 institutional investors.
Nationally, IPO activity in the third quarter slowed to 23 deals that raised only $3.2 billion, the lowest level since the stock market started its rebound in the spring of 2009.
However, there is $27 billion worth of IPO deals in the national pipeline, according to Dealogic, and some of that will launch in the fourth quarter amid the buoyant stock market.
A General Motors offering is among those pending deals. And its underwriters filed for a nominal amount of $100 million with federal regulators. Yet the IPO for the back-from-bankruptcy automaker is expected to raise at least $10 billion.
The fourth quarter could prove the biggest IPO market of the year.