Participate, Profit & Celebrate:
Q.: Which global markets are most desirable destinations for dealmakers in 2011? why?
Mr. Gedhill: I think its Europe and North America with both being rich established targets and trustworthy business practices. As an emerging player with resources, a company often struggles to win customers in these more established markets. This drives acquisitions into both Europe and North America from outsiders, such as those in India, Korea or Japan. Globalization is what we see as the strongest underlying trend in the M&A business.
Q.: Who do you believe are the deal drivers for the first half of this year?
Mr. Gedhill: The most intriguing global deal driver in the first half of 2011 is the need for private equity funds to make exits. If private equity firms are able to complete exits and return capital to limited partners, it will open the possibility of raising a new fund. In short, the exit pressure on private equity funds beats other factors in 2011, including low interest rates, large cash positions of major strategic buyers, and rising stock markets.
Q.: Are there any unique trends in the composition of cross-border deal flow including sector preferences?
Mr. Gedhill: The categories that will continue to benefit from globalization are basic industries, which are consumer, energy, technology, industrial and healthcare. Businesses like Lewa, a German-based maker of specialty pumps for the oil and gas industry, being acquired by Nikkiso, a private Japanese company, is an example. They have a wide assortment of products and a strong client list, but to further leverage their client relationships it would take new product lines. They find themselves up against a buy versus a build question and ultimately found a great business with a world-leading product offering and a new list of client in which Nikkiso's existing product managers can start to hunt.

Another example is Best Brands being acquired by CSM. We see globalization underlying a push by consumer brands to penetrate specialty channels around the world. By acquiring an innovative player, CSM catapults their market share in a fast-growing market.
Q.: What is the state of corporate financing for mid-market business?
Mr. Gedhill: It's getting better, but not necessarily back to the normal levels. Companies in the middle market with less than USD 10 million EBITDA have historically had a constraint with their corporate financing needs. However, as companies reach the USD 20 to USD 50 million EBITDA range, they offer lenders more stability and scale, making lending more readily available. Debt is available again for those businesses.
Q.: Has there been changes in the current deal structures?
Mr. Gedhill: Deal structures have changed in both the M&A and equity capital markets. With M&A transactions, we have seen much higher equity requirements in LBOs. The change we see in the IPO market is it is more common to see selling shareholders as a component of an IPO. If investors allow some portion of the selling shareholders to sell, it allows the deal to be larger, sets the company up for a better trading platform, and achieves a true market toward pricing.
Q.: How is financing continuing to affect the mid-market M&A transaction process?
Mr. Gedhill: We are seeing fewer broad auctions as a tool to sell a business. Instead, we are seeing more select discussions between curious parties. When we do run full sell processes with larger buyer lists, the financing component is more front and center than in 2006 and 2007. By this I mean we are arranging funded staples, paper clips and debt architectures to insure that private equity players can keep up with strategic buyers and to add to the seller's certainty that a deal will take place. M&A flows are still just 8% of GDP, so we have another 25% growth in market activity before we hit the five or fifteen year average. We like the prospects for M&A volumes to grow over the next two to four years.
Q.: On the IPO front, what are your thoughts on market activity and effect on private equity deal volume?
Mr. Gedhill: I believe we will see a healthier IPO market in 2011, consisting of fewer foreign offerings, with a return to U.S. domestic growth offerings. One thing that could slow things down is the trend we experienced in early 2010, when private equity funds unloaded highly leveraged, slow growth platforms. If the IPO window for true growth companies can stay open for investors, we should see an improved deal volume.
Q.: So, you anticipate more private equity-backed companies' listings?
Mr. Gedhill: Having a larger number of VC-backed companies coming to market would be welcomed and may be very possible this year. I am mixed about too many private equity-backed companies coming to the market in 2011. If the companies have strong growth profiles, then I will welcome it, but if the companies are highly levered with limited growth prospects, it will cool the market and restrain it for others. The IPO market exists for growing companies to finance their strategies, not for private equity firms to unload their mistakes.
Q.: What sets William Blair apart from the competitive landscape of mid-market investment banks?
Mr. Gedhill: Our people separate us from all competitors. Client surveys tell us that we have tenacious, authentic people with great industry expertise. Our people offer creative solutions and possess the expertise to deliver them without conflicts, enabling them to forge meaningful relationships with clients around the world and to provide sustainable value that lasts decades.
Q.: In closing, what book are you reading right now?
Mr. Gedhill: A Lifetime of Observations and Reflections On and Off the Court by John Wooden with Steve Jamison. It's about one of the greatest coaches of all time, his respect for the game and more than that, his respect for his people. In the book, Coach Wooden shows how the skills he taught on the basketball court could be transferable to success in the real world. I believe coaching books, even better than business books, show how to take a group of highly talented individuals and get them to focus their abilities in ways that makes the broader team more successful. Zen Mind, Beginner's Mind by Suzuki is another book, and may be the best book for enabling high performing individuals. Phil Jackson gave it to Michael Jordan and Kobe Bryant to help them have the right perspective and so far it has yielded 11 NBA championships.

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