February 2012
It has been a remarkably turbulent month in the global markets as the US narrowly avoided a default on its debt obligations. The partisan standoff continued all the way through the August 2nd deadline to raise the nation’s debt ceiling. This prompted a ratings downgrade by S&P from AAA to AA+, and S&P continues to keep the US on “negative” outlook. This downgrade combined with recurring debt problems in Europe and high oil prices has caused the market to retreat back to levels not seen since 2010. That being said, the S&P 500 is still up 6% for the trailing twelve months. These uncertainties in sovereign debt coupled with high oil prices have caused investors to flock to the safe haven of gold and US treasuries, which have climbed to an all-time high of over $1,800 per ounce and a year-to-date low yield of 2.14% (respectively).
 
The Bureau of Labor Statistics released the Employment Situation for July stating that nonfarm payrolls have increased by a preliminary estimate of 117,000 and unemployment has edged down only slightly to 9.1% compared to 9.2% in June. Payroll growth was seen most noticeably in health care, retail trade, mining, and manufacturing. Public sector employment continued to decline.
 
Also, on July 29th the Bureau of Economic Analysis (BEA) released advanced estimates of Q2 2011 real GDP growth of 1.3%, a substantial improvement from .4% real growth in the first quarter. The BEA states this increase in Q2 real GDP reflect gains in “exports, nonresidential fixed investment, private inventory investment, and federal government spending,” while being partially offset by decreases in state spending, local spending, and an increase in imports. The Federal Reserve Bank revised their range for GDP growth estimates for the 2011 down to 2.7-2.9% from 3.1-3.3%. 
 
The NASDAQ Composite is a useful gauge for how technology stocks are performing, as the NASDAQ is a tech-heavy index. However, the custom index below illustrates the performance of tech companies in New England, based on publicly traded New England-based companies in the IT, healthcare technology, and telecommunication sectors.
 
 
 
 
This shows the premium valuations that New England technology companies are commanding over the rest of the tech market. Excluding the recent sell-offs described above, tech companies based in New England historically command a 0.5x revenue and 1-2x EBTIDA premium over the NASDAQ composite.
 
After peaking at 1,363 on April 29th, the S&P 500 has hit a summer slump, pulling back through beginning of August. Investors continue their flight to quality and liquidity by flocking out of equities and into high grade credit (particularly treasuries) and gold. Moves made by central banks around the world along with better than expected unemployment data in the US have erased some of the sharp downturn seen in early August following the US debt deal.   
 
 
 
Middle market M&A activity for July decreased slightly from the uptick seen in June. Technology and industrials continue to lead the middle market deal space, accounting for 62% of deals in July.
 
 
 
In the technology sector, comScore, Inc. (NASDAQ: SCOR) entered into a definitive agreement to acquire AdXpose, Inc from Draper Fisher Jurvetson and Ignition Partners for $22 million on August 3, 2011. The consideration will be paid 90% in common stock and 10% in cash. An escrow payment of $4 million will be withheld at the time of closing and $2 million will be paid on the one year anniversary of the Closing and $2 million on the two- year anniversary of closing. AdXpose (formerly known as Mpire Corporation) is a SaaS provider of digital advertising analytics solutions. comScore, Inc. provides a digital marketing intelligence platform.
 
Randstad North America, L.P. entered into a definitive agreement to acquire SFN Group, Inc. (NYSE: SFN) from Sagard Capital and other shareholders for approximately $700 million in cash on July 20, 2011. This transaction has an implied enterprise valuation of 0.4x revenue and 10.2x EBITDA.
 
AO Smith Corp. (NYSE: AOS) signed a definitive agreement to acquire Lochinvar Corporation, a manufacturer of water heating equipment, from the Vallett family for approximately $450 million on July 18, 2011, consisting of $418 million cash at closing and an additional $35 million if certain revenue objectives are achieved. Assuming the earn-out is achieved, the enterprise value implies multiples of 2.3x revenue and 10.1x EBITDA.
 
In the Distribution sector, DryShips (NASDAQ: DRYS) entered into an agreement to acquire 50.47% stake in OceanFreight, Inc. (NasdaqGM: OCNF.D) for approximately $230 million on July 26, 2011. This purchase represents an enterprise value of 3.0x revenue and 7.8x EBITDA.
 
Despite loosening debt markets for leveraged buyouts, strategic acquisitions continue to represent the largest share of deal volume. While leveraged buyout (LBO) activity has ticked up slightly over the course of 2011, LBOs still represent less than eight percent of trailing 12 month total transactions, and just over five percent of the transactions in the middle market.
 
Founded in 1987, Mirus Capital Advisors is a middle-market investment bank that specializes in merger advisory, capital-raising services, fairness opinions and valuations to entrepreneurs, corporations and professional investors. By combining a proven process, industry and transactional expertise, and personalized service, Mirus has completed hundreds of transactions for both public and private companies. 
 
Our affiliate Mirus Securities, Inc. is a registered broker-dealer and FINRA/SIPC member.
 
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For any questions about the Middle Market Monitor or Mirus Capital Advisors, please contact Mirus Capital Advisors at 781-418-5900 or visit www.merger.com. You can also contact our senior bankers directly at:
 
Sources: CapitalIQ, Bloomberg and Mirus analysis. Copyright 2011, Mirus Capital Advisors, Inc. All rights reserved. Mirus Capital Advisors does not assume any liability for errors or omissions.
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