What's Going on in the Markets - January 2009 M&A and Placement Numbers Worldwide

NEW YORK, February 2, 2009 - The independent New York investment bank KTA Capital, LLC ("KTA Capital") released today its analysis of the January 2009 small-cap market activity, both worldwide and in selected national markets. The analysis covers US, Australian/NZ, Canadian, Asian and European data on M&A, going privates and private placements by public companies for January 2009.

The World
There have been 1,810 M&A transactions, 355 private placements by public companies, and 14 going private transactions worldwide in January 2009. This compares to 3,440 M&A transactions, 422 private placements and 17 going privates in January 2008, and 2,863 M&A transactions, 731 private placements and 10 going privates in December 2008.

While activity in January is typically down compared to December, the overall international trend is fairly clear - there has been a substantial reduction in the amount of corporate finance activity internationally, not only compared to the same period last year, but also compared to December 2008. However, several distinct trends have emerged in specific national markets - see the information below.

The United States
There have been 551 M&A transactions, 42 private placements by public companies ("PIPEs") (excluding transactions involving the United States Treasury), and 6 going private transactions in the United States in January 2009. This compares to 1,007 M&A transactions, 108 private placements and 9 going privates in January 2008, and 694 M&A transactions, 108 private placements (excluding transactions involving the United States Treasury) and 1 going private transaction in December 2008. (The above analysis excludes several mega-deals which are not overly relevant to the small-cap end of the market).

Despite the decrease in the number of transactions, the total US M&A volume in January 2009 was US$110 billion, greater than the January 2008 volume of US$104 billion and the December 2008 volume of US$35 billion. The average total-enterprise-value-to-EBITDA multiple in these transactions was 7.1, compared to 8.7 in December 2008 and a staggering 24.8 in January 2008. At least 122 of the M&A transactions were of less than US$100 mil, and at least 13 were between US$100 mil and US$500 mil in size.

The January 2009 small-cap PIPE volume was US$1.3 billion (excluding transactions involving the United States Treasury), greater than the January 2008 PIPE volume of US$1 billion (adjusted to exclude the three multi-billion dollar PIPEs undertaken that month), but substantially less than the US$2.42 billion raised in US PIPEs (excluding transactions involving the United States Treasury) in December 2008. A vast majority of the PIPEs (37) were less than $100 mil, with the average deal size of $31 mil.

Below is the breakdown of US M&A and PIPE transactions in January 2009 by industry:

M&A
Energy 21
Materials 29
Industrials 64
Consumer Discretionary 100
Consumer Staples 15
Healthcare 54
Financials 96
Information Technology 92
Telecommunication Services 5
Utilities 7

PIPEs
Energy 6
Materials 5
Industrials 1
Consumer Discretionary 3
Consumer Staples 1
Healthcare 13
Financials 82
Information Technology 11

Based on these statistics, the overall international contraction trend is also evident in the US, but several additional important trends can be discerned here:
· The valuations are markedly down, both compared to the preceding 30 days and the same period last year.
· As a result, the decrease in the number of M&A transactions compared to December is not as substantial in the US as it is worldwide, driven, to a large extent, by those US industry companies that are fortunate to be in sound financial position, an influx of foreign industry participants that seek to acquire US assets "on the cheap," and the inflow of financial institutions' money seeking the "bottom."
· The corollary of that is that the overall dollar volume of M&A is up, and so is the small-cap PIPE dollar volume when compared to the same period last year (it is nevertheless down approx. 50% compared to December 2008).
· While going private transactions are generally substantially rarer than traditional M&A, there has been an uptick in those, as management teams recognize the opportunity presented by the compressed valuations.
· With mega-deals gone, most of the action is focused on the small-cap end of the market.
· Consumer and financial industry consolidations lead the way, with consumer goods companies generally seen as easy to understand and easy to model. The financials' number may be somewhat misleading in that it incorporates a number of transactions effectively undertaken by the US government. It's worth noting that the tech and the biotech/healthcare sector corporate finance activity remains quite robust.

Australian Securities Exchange / New Zealand Exchange
There have been 4 public M&A transactions and 39 private placements on the ASX and NZX in January 2009. This compares to 5 public M&A transactions and 27 private placements in January 2008, and 14 M&A transactions and 59 private placements in December 2008. (Please note that the analysis of the Australian and New Zealand markets focuses on public companies only, as opposed to the M&A analysis of US transactions above).

The total Australian/NZ public M&A volume in January 2009 was a negligible US$61 million, significantly down from the January 2008 volume of US$2.4 billion and the December 2008 volume of US$468 million. The average total-enterprise-value-to-EBITDA multiple in these transactions was 5.8, compared to 12.7 in December 2008 and 11.9 in January 2008. All of the ASX/NZX M&A transactions were of less than US$100 mil.

The January 2009 Australian/NZ small-cap private placement volume was US$965 million, double the January 2008 volume of US$480 million, but substantially less than the US$5.33 billion raised in December 2008. A vast majority of the private placements (37) were less than $100 mil. The average private placement was US$25 million, compared to US$90 million in December 2008 and US$19 million in January 2008.

Below is the breakdown of Australian/NZ M&A and PIPE transactions in January 2009 by industry:

M&A
Energy 1
Materials 1
Industrials 1
Financials 1

PIPEs
Energy 3
Materials 22
Industrials 2
Consumer Discretionary 3
Consumer Staples 2
Healthcare 1
Financials 2
Information Technology 4

Several additional important trends can be discerned here:
· Both the M&A and private placement dollar volumes have contracted very significantly.
· The number of private placements, while down from early 2008, is up compared to December. Their average size is, however, substantially down. In other words, more deals are getting done at the smaller end of the market, and fewer deals are getting done at the larger end.
· The Australian P/E ratios (5.8) remain about 20% lower than those in the US (7.1).
· The number and volume of private placements in Australia were almost the same as those in the US public markets in January, despite the much smaller size of the Australian capital market.
· However, the number of public M&A transactions is almost negligible. I.e. the Australian PIPE market remains relatively popular with foreign institutional capital but is largely overlooked by strategic industry investors.
· Most of the recent action is in materials (natural resources), as has traditionally been the case.

Canada
There have been 14 public M&A transactions, 107 private placements and 2 going private transactions in the Canadian public market in January 2009. This compares to 10 public M&A transactions, 128 private placements and 1 going private in January 2008, and 28 M&A transactions, 273 private placements and 1 going private in December 2008.

The total Canadian public M&A volume in January 2009 was US$804 million, significantly down from the December 2008 volume of US$1.6 billion but up on the January 2008 volume of US$559 million. The average total enterprise value to EBITDA multiple in these transactions was 6, compared to 22 in December 2008 and 19 in January 2008. 12 out of the 14 Canadian M&A transactions were less than $100 mil each. The average premium of 35% to the previous day's trading price was achieved in Canadian M&A transactions.

The January 2009 Canadian small-cap private placement volume was US$660 million, significantly below the January 2008 volume of US$2.66 billion and the December 2008 volume of US$2.33 billion. A vast majority of the private placements (105) were less than $100 mil, with the average deal size of only $6 mil.

Below is the breakdown of Canadian public M&A and PIPE transactions in January 2009 by industry:

M&A
Energy 1
Materials 6
Industrials 3
Consumer Discretionary 1
Financials 2
Information Technology 1
 
PIPEs
Energy 11
Materials 74
Industrials 3
Consumer Discretionary 3
Healthcare 3
Financials 7
Information Technology 5
Utilities 1

The Canadian M&A and PIPE markets remain, surprisingly, relatively robust compared to most other markets, despite the overall trend down.
 
Europe
There have been 763 M&A transactions, 35 private placements and 1 going private transaction in all the European markets in January 2009 (these statistics relate to both private and public transactions, unlike our Australian and Canadian statistics). This compares to 1,427 M&A transactions, 51 private placements and 4 going privates in January 2008, and 1,189 M&A transactions, 55 private placements and 5 going privates in December 2008.

The total European M&A volume in January 2009 was US$31.5 billion, down from the December 2008 volume of US$43.9 billion and the January 2008 volume of US$46.9 billion. The average total enterprise value to EBITDA multiple in these transactions was 10.7, compared to 21.8 in December 2008 and 22 in January 2008. At least 135 of the European M&A transactions were less than $100 mil each and at least 17 were between US$100 mil and US$500 mil. The average premium of 31% to the previous day's trading price was achieved in public European M&A transactions.

The January 2009 European private placement volume, excluding mega-deals, was US$3.2 billion, significantly and surprisingly up on the January 2008 volume of US$1.5 billion and the December 2008 volume of US$1.1 billion (excluding deals undertaken by governmental agencies). This reflects the substantial increase in the average European PIPE deal size from US$29 million and US$23 million in January and December 2008, respectively, to US$90 million in January 2009. The European trend thus seems to be different from that of the US and Australia, where most of the action has moved downmarket.

Below is the breakdown of European M&A and PIPE transactions in January 2009 by industry:

M&A

Energy 10
Materials 37
Industrials 144
Consumer Discretionary 150
Consumer Staples 33
Healthcare 25
Financials 102
Information Technology 84
Telecommunication Services 5
Utilities 11

PIPEs
Energy 4
Materials 4
Industrials 5
Consumer Discretionary 4
Healthcare 6
Financials 6
Information Technology 3
Telecommunication Services 1
Utilities 1

Selected Major Asian Stock Exchanges
The statistics below address transactions on Bombay Stock Exchange, Hong Kong Exchanges and Clearing Ltd, Stock Exchange of Singapore, Shanghai Stock Exchange and Shenzhen Stock Exchange.

There have been 15 public M&A transactions and 36 private placements on these exchanges, combined, in January 2009. This compares to 34 public M&A transactions and 48 private placements in January 2008, and 43 M&A transactions and 41 private placements in December 2008.

The total public M&A volume of these exchanges in January 2009 was US$6.1 billion, significantly up from the January 2008 volume of US$3.2 billion and the December 2008 volume of US$1.7 billion. Similar to Europe, Asian M&A transactions have seen an increase in the average size of the "ticket" (to US$509 million from US$58 million in December 2008). However, this may be somewhat misleading in that 12 of the 15 transactions were of less than US$100 mil, and the average was pushed up by the other 3, larger deals. The average total-enterprise-value-to-EBITDA multiple in these transactions was 12.9, compared to 11.6 in December 2008 and 14 in January 2008. That represents the highest P/E ratio of all the markets surveyed and the lowest percentage decline in the P/E ratio compared to that of January 2008, which likely reflects the market perception that most Asian economies remain relatively robust.

The January 2009 small-cap private placement volume on the Asian exchanges surveyed was US$418 million, significantly down from the January 2008 volume of US$2.5 billion and the US$1.7 billion raised in December 2008. 12 of the 36 PIPEs were less than $100 mil. The average private placement was US$12 million, compared to US$82 million in December 2008 and US$66 million in January 2008, a trend consistent with most other markets.

Below is the breakdown of the M&A and PIPE transactions in January 2009 by industry:

M&A
Materials 2
Consumer Discretionary 3
Consumer Staples 3
Healthcare 1
Financials 4
Information Technology 2

PIPEs
Materials 8
Industrials 7
Consumer Discretionary 7
Consumer Staples 3
Healthcare 2
Financials 4
Information Technology 5

What Do We Think This All Means?
The capital markets have tightened significantly, even compared to December 2008 and, we believe, will continue to tighten short-term. Unfortunately, many companies that think they can sit out the downturn and raise cash in a few months and/or at higher valuations are likely to be unpleasantly surprised. The world has changed, and it is not going to be the same as what we have gotten used to in the recent 6 years or so. Similarly to the downturn of the early 2000s which wiped out a large number of tech companies that had no path to profitability; today, many of those small-cap companies in a range of industries that have historically been unprofitable and have no short-term path to profitability, will not be financable, at least short-term, and may not survive beyond the next 6 months.
 
However, in an environment where "flat" is the new "up," as of today, there is still a robust amount of capital and debt available to good, stable or growing companies internationally, particularly at the small-cap end of the market and particularly if you can tap into pools of capital and strategic investors outside of your homemarkets. The pace of M&A transactions remains fairly high overall, with consolidation going on in most industries, and a sale to, or a merger with, a strategic industry participant may be a relatively painless alternative for many of those companies that are unable to raise funds. A good deal can be done, albeit at a substantially cheaper price than it would have attracted a year ago or even a month ago.

About KTA Capital, LLC

KTA Capital is an investment bank headquartered in New York, USA. Its services and products include international investment banking across a wide range of industries, both in the equity capital and debt markets, as well as M&A advisory. In its business it leverages its relationships with literally hundreds of institutional investors, including hedge funds, mutual funds, private equity funds, venture capital funds, bond funds, mezzanine debt funds, private placement funds, investment advisers, national, regional and international banks, acquisitive industry participants and strategic cornerstone investors, family offices, merchant banks and sovereign wealth funds. KTA Capital is registered as a broker-dealer with the United States Securities and Exchange Commission and is a member of Financial Industry Regulatory Authority, Inc. ("FINRA").

Media Contact:

Eugene Tablis
Tel.: +1 646 707 4177
E-mail: eugene.tablis@ktacapital.com