Recent acquisitions point to solid local economy

While growth through acquisition proved a poor strategy for large public companies like WorldCom and Enron, it's a formula for success for local, middle-market companies.

Noble & Associates and American National Property & Casualty two national companies based in Springfield have proved that national economic hardships have not stymied the desire of local businesses looking to grow.

"Based on the size and the economic strength of the Springfield community, it compares favorably to other larger markets in terms of merger and acquisition activity," said Steve Blumreich, president of BKD Financial LLC, a firm that advises companies on growth strategies.

Aided by historically low interest rates on commercial loans, it is a buyer's market for companies with management and capital in place, he said.

Power of the dollar

"This is about taking advantage of the times," said Bob Noble of his ad agency's third acquisition in 33 years. "Now is the best time because money is so cheap."

Noble doubled the number of associates in the Chicago office by acquiring BBDS Com-munications. He did not disclose the transaction value.

According to Liberty Bank Vice President Tim Baker, the prime interest rate on a commercial loan Oct. 2 was 4.75 percent, which is where it's been since December. At the start of 2001 it was 9 percent, and the lowest it reached in the 1990s was 6 percent, he said.

"There is money available to help companies make acquisitions," Blumreich said.

American National Property & Casualty spent $280 million to acquire New York-based Farm Family Insurance and its subsidiaries last year, and the insurance firm continues to integrate the companies into operations.

A couple months ago, it began selling Farm Family insurance in the Midwest and ANPAC was offered in the northeast. It was ANPAC's first merger.

"Obviously, the economy, with the lower interest rates, helped make the fit with the financial numbers," said ANPAC President Greg Ostergren. But a stronger force was the strategic fit between the two companies, he said.

Blumreich said that fit is the No. 1 consideration when looking at acquiring a company. Next to familiarity is a company's monetary value. Blumreich warned that a company shouldn't acquire anything much larger than itself. The third consideration is geography.

A consideration that is always a given when considering acquisition is checking a company's financial track record to determine the likelihood of its growth and profitability, Blumreich said.

Public firms beware

The doomed business growth examples offered by Enron, WorldCom and Tyco have raised a red flag for many large public companies when it comes to acquisitions and for good reason, Blumreich said.

Public entities are motivated by different forces than their private counterparts: shareholders.

Stock price and shareholder influences play a large part in public company decisions not always for the overall good, he added.

"The acquisitions may not have been good business decisions based on the underlying business of the company," Blumreich said of recent public corporation acquisition activity. "They were more fueled by what impact it was going to have on their stock prices."

A national economy seeking a kick-start will not find it in the merger and acquisition industry. Even though interest rates are low, the transaction volume isn't there on the national front for both public and private players.

According to Mergerstat, a merger and acquisition research and analysis firm, total United States transactions have been on the decline since reaching an all-time high of 11,123 in 2000.

Investor fears have scaled back public company acquisitions to 2,247 in the first six months of this year, the lowest first-half total since 1996. While not hit as hard, private firms are seeing their lowest six-month deal rate since 1998 with 1,142 acquisitions.

Compared to national transactions, Springfield's activity is a bit higher, Blumreich said.

"Springfield has a very strong and stable economic base. There are many good (middle market) companies here," he said. "They have the ability to grow through acquisitions just like the rest of the country does. I think this is a good area for local companies to consider making acquisitions."

Where the local merger and acquisition market does not compare to national numbers is in the transaction values, Blumreich said, because of the smaller size of most local companies. A middle market company's value is generally less than $50 million, and a small market company's value is less than $2 million, he said. BKD represents mostly middle-market companies throughout the nation.