PFFC - January 2008 - (Page 36) MERGERS & ACQUISITIONS ���������������������������������������� �������������������������������������������������� ���������������������������������������� �������������������������� �������������������������������������������������� �������������������������� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� Figure 3. �������������������� �������������������� ����������� ����������� ���� ���� ���� ���� ���� ���� ��� ��� �� �� ����������� ����������� ���� ���� ���� ���� ���� ���� Private equity groups are not able to raise as much debt, and consequently the prices they are willing to pay for large transactions have come down. Field Container Corp. and subsequently merge with Graphic Packaging (pending as of publication date). This transaction demonstrates the numerous exit options available in the packaging industry and exemplifies why private equity sponsors have been attracted to packaging. Post-Credit Crunch ��� ��� �� ���� �� ���� �� ���� �� ���� �� ���� �� ���� �� ���� �� ���� ��������������������������� ��������������������������� ������������������������ ������������������������ ���������������������� ���������������������� �� �� �� �� �� �� � � � � ����������� ����������� �� �� �� �� �� �� � � ��� ���� ��� ���� � � ��� ���� ��� ���� Figure 4. �������������������������� ��� ���� ��� ���� ��� ���� ��� ���� ��� ���� ��� ���� �������������������������� ���������������������� ���������������������� ������������������� ������������������� ����������� ����������� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ����������� Figure 5. The credit crunch that started last summer certainly has had an impact on the private equity industry. What began as a problem in the subprime mortgage industry quickly caused large institutional lenders to become more conservative. In fact, a number of investment banks were left holding financing commitments that they had to honor but were unable to syndicate as a result of this conservatism. This phenomenon was evident particularly in some of the larger private equity transactions. The net result was a significant contraction in highly leveraged financings. Figure 3 demonstrates the rapid fall-off in high-yield debt activity since last summer’s credit crunch. Not surprisingly, the decrease in high-yield activity is having a meaningful impact in the volume of large private equity transactions. Private equity groups are not able to raise as much debt, and consequently the prices they are willing to pay for large transactions have come down. Sellers’ valuation expectations have not yet adjusted to this phenomenon, so the volume of large private equity-backed transactions has dropped meaningfully. Figure 4 demonstrates the dropoff in announced leveraged buyouts in excess of $1 billion in size. Impact on the Middle Market ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� Interestingly enough, the credit crunch has not affected middlemarket transactions as dramatically. Mid-sized transactions simply were not large enough to access the more aggressive pools of capital available to the larger transactions. Figure 5 demonstrates very little change in leverage available for middle-market transactions since last summer. As a result of this relative immunity from the credit crunch, we continue to see a high level of private equity activity in middle-market packaging transactions. Frankly, due to the tremendous amounts of private equity capital raised over the last few years, it would not be surprising to see an eventual pickup in large-transaction private equity activity in packaging. That money still has to find a home. Bill Hornell is a managing director in the Investment Banking Group at Mesirow Financial. He has completed more than 60 merger and acquisition packaging transactions. A significant majority of these transactions involved consumer packaging businesses. Reach him at 312-595-6176; or by e-mail at bhornell@mesirowfinancial.com; www.mesirowfinancial.com. WWW.PFFC-ONLINE.COM ��������� ��������� ���������� ���������������������������������� ���������������������������������� 36 | JANUARY 2008 �� ���� �� ���� �� ���� �� ���� ����������� �� ���� �� ���� �� ���� �� ���� ���������� �� ���� �� ���� http://www.mesirowfinancial.com http://WWW.PFFC-ONLINE.COM
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