Strong Economy Feeds Mergers and Acquisitions

Article excerpt

UNITED STATES merger and acquisition activity is booming so far this year, thanks in part to folks such as broker and consultant R. Paul Sprague.

Mr. Sprague is chairman and chief operating officer of Warwick & Company, a private investment banking firm based in New Canaan, Conn.

Warwick & Company finds buyers for small businesses. Sprague, who has helped arrange takeovers for more than 60 companies over the past 10 years, says the current economic climate is the best he can recall for the merger and acquisition market.

Reasons, he says, include a growing US economy and the strong financial position of commercial banks and investment banking houses, which not only have money to lend businesses to finance acquisitions, but also are willing to do so. Recent interest-rate hikes have not curbed merger and acquisition activity, he says.

Companies that track merger and acquisition transactions corroborate Sprague's conclusion about the current market. "{Merger and acquisition} activity is definitely booming right now," says Robert Liu, a financial analyst with Securities Data Company, a financial research organization based in Newark, N.J.

"If present trends continue, 1994 will be a better year for mergers and acquisitions than 1993," Mr. Liu says.

So far this year, merger and acquisition transactions are valued at $124 billion. That compares with $246 billion for all of 1993, the third highest year recorded for such transactions. Second highest was 1989 at $293 million. The best year was 1988, with transactions valued at $336 billion.

Sprague's deals are relatively modest compared with many of the multimillion-dollar corporate transactions that Securities Data tracks. Most of the smaller businesses that Sprague advises have a book value of between $10 million and $100 million; the average firm is privately held and valued at around $40 million.

A tall, affable person, Sprague says he "loves the negotiations" involved in the sale of a company. Sometimes, he is surprised by the results. For example, the owner of a small firm recently wanted to sell out to an overseas manufacturing company for $24 million. "But the owner said he would take $20 million," Sprague says. …