Merger professionals from Wisconsin say the current M&A environment remains anemic, yet express guarded optimism about a pickup in 2010, with strategic investors and distressed sales continuing to leading the way.

The latest twice-yearly survey by the Association for Corporate Growth (ACG) and Thomson Reuters reveals that negative sentiment about the dealmaking environment has not changed during the last year, with 89 percent of dealmakers from Wisconsin saying the current M&A environment is fair or poor.

Over the next six months, however, 77 percent of dealmakers from Wisconsin expect an increase in merger activity. 
The ACG-Thomson Reuters Year-End 2009 DealMakers Survey polled investment bankers, private equity professionals, corporate development officers, lawyers, accountants and business consultants in October and November 2009.

Eighty six percent of survey respondents indentified the current environment as a buyer’s market. Eighty four percent of respondents said the current market favors strategic investors. And, 98 percent of respondents expect strategic investments to accelerate in 2010. Fifty one percent of respondents are actively pursuing distressed and undervalued companies.

“The M&A market is definitely beginning to pick up,” says Ronald Miller, managing director at Cleary Gull Inc. and president ACG – Wisconsin.  “We expect the volume of transactions to increase in 2010 as both buyers and sellers adjust to the realities of the market.”

While the credit crunch has decreased in importance as the biggest obstacle to M&A activity (37 percent), the gap between the prices at which companies are willing to sell and the prices that buyers are willing to pay has been rising in importance (40 percent).

Wisconsin dealmakers expect the following sectors to experience the most merger activity in the first half of 2010:
• Manufacturing and distribution (40 percent)
• Financial Services (17 percent)
• Business Services (10 percent)
• Healthcare/Life Sciences (10 percent)

The following sectors are expected to experience the most organic growth:
• Healthcare/life sciences (21 percent)
• Government-related (19 percent)
• Business Services (14 percent)
• Food (7 percent)

Employers anxious about retiree medical promises

A weak economy and uncertainty about the direction, timing, or impact of national health care reform have plan sponsors in a quandary as to how to address the rising cost and continuing administrative burden of their retiree medical plans. These findings are from a new survey from the Brookfield-based International Society of Certified Employee Benefit Specialists and Towers Perrin. The survey also revealed a sense of urgency about the need to make changes to costly retiree medical plans, an urgency compounded by the historical lack of marketplace solutions for pre-Medicare retirees, creating further anxiety among plan sponsors.

“Employers have a good understanding of their retiree medical problems, and a wish-list about the general features of an attractive solution,” says C. Scott Boring, CEBS, Society president and vice president of Lockton Insurance Brokers LLC. “Specifically, they want retirees to have access to high-quality commercial insurance products and they want an outsourcing partner to handle administration.”

But plan sponsors remain concerned about retiree disruption, and are looking for clarity about the right way to recast their ‘deal’ with employees and retirees to achieve broader workforce management objectives.

The joint nationwide survey conducted by Towers Perrin and the ISCEBS, now in its fifth year, drew responses from 155 organizations on issues and objectives influencing retiree medical strategy and design.

Nearly 70 percent of survey respondents indicated that they continue to provide retiree medical coverage to some or all retirees, and about 80 percent of retiree medical plan sponsors pay some portion of the cost of plan coverage. Even extending future retiree medical coverage to new hires — a concept conventionally thought to be a thing of the past — is a reality for 40 percent of the survey’s respondents.

The most heightened tension is with pre-65 retirees, for whom there remains a lack of access to affordable private insurance options. Without affordable marketplace offerings, employees without access to subsidized employer coverage before age 65 are delaying retirement, giving rise to other workforce management challenges. Even the 45 percent of employers who subsidize pre-65 coverage but limit their subsidy to a fixed dollar maximum, or cap, are feeling pressure, as costs rise above the caps and retirees — who must pay the full excess cost — are exposed to high and rapidly rising premium cost-sharing.

To view the survey results, Retiree Medical Challenges and Opportunities, visit www.iscebs.org.