Mergers and acquisitions or M&A is the consolidation of companies. Yet, the term is twofold.
The consolidation of companies happens for a number of reasons. Sometimes a company is failing and gets bought out by another company as their exit strategy. Other times the combination of two companies in the same industry, for example, can create one company with maximized value.
In the end, M&As benefit both companies financially by bringing more power, more efficiency, and value to that area of the industry.
The beginning of 2016 saw a decline in M&A activity after record highs in 2015. But, the conditions remain conducive to M&As in South Carolina from here on out. Both private equity firms and strategic buyers for M&A deals are still eyeing S.C. companies as prospective targets of mergers and acquisitions.
M&A in South Carolina in the first half of 2016
According to MergerMarket, M&A activity in the South experienced a decline in the first half of 2016, with a reported 8-10% decline in deal volume as compared to the first half of 2015.
The strength of these deals resulted from megadeals, which are deals over $5 billion. M&A activity in 2016 has generally outpaced the post-recession years of 2009-2013. Many M&A professionals view the 2016 pace as a “normalization” of deal activity rather than a dramatic shift.
One major example of M&A in S.C. was South State Corporation (NASDAQ:SSB) and Southeastern Bank Financial Corporation (OTCQB:SBFC), who jointly announced the signing of a definitive merger agreement. The combination of these two companies created a premier franchise in the Carolinas and Georgia.
What drives M&A in South Carolina?
South Carolina has benefited from companies with revenues between $50 million and $2 billion, also known as benefits middle market companies. South Carolina is home to more than 450 of these middle market companies in South Carolina. Looking at the Upstate, there are over 170 middle market companies.
A recent acquisition in Rock Hill of two locally-owned waste service companies is a prime example of companies joining forces for better service to York and Lancaster Counties.
Not only the plethora of middle market companies and megadeals in S.C. are attractive, investors are keen on the idea that manufacturing is extremely strong in the Southeast which is especially attractive sector to the M&A market.
Another thing that drives M&A in South Carolina is the fact that money travels. With investors from other parts of the country needing a break from inflation and high costs, South Carolina is a very attractive option for M&A. Even within the state, different areas such as Charleston and Rock Hill, for example, vary in terms of the value of a dollar. Upstate is not on;y cheaper, but there are less developed hubs in need of mergers.
However, as nice as megadeals are, the majority of South Carolina’s M&A activity is actually from middle market deals, as can be inferred from the high number (450+) of middle market companies. This is seen a beneficial because the merger or acquisition of middle market companies will maintain a steady pace of growth, as opposed to megadeals, which severely disrupt economic activity and can affect employees and companies alike.
What can the South Carolina M&A market look forward to for the rest of 2016 and beyond?
As expected, middle market M&A activity will remain strong in the state and Southeast in general. Corporations have large cash balances and are looking to seek growth via acquisition in the middle market especially.
Additionally, the largest funds are held by private equity firms and are in heavy competition with strategic buyers looking for companies that will create a synergy with their existing businesses are paving the way for an increase in demand for middle market companies.
Ultimately, these conditions are ideal for companies looking to make a sale. With low-interest rates and an abundance of capital on the sidelines waiting to be deployed, conditions are ripe for middle-market companies to sell.