For the fourth consecutive year, the pace of mergers and acquisitions in the foodservice equipment and supplies industry remains high and deals continue to close at a brisk pace. In 2005, a total of nine M&A deals involving manufacturing companies were completed. That number grew to 16 in 2006. As of August 2007, nine deals were completed, with another 11 in the pipeline that should close by the end of the year. That's a healthy clip showing no signs of slowing in the near future.

Consolidation remains a key strategy for many buyers, who continue to leverage somewhat cheap money in making their purchases. As a result, the multiples that buyers pay for the companies they acquire continue to be higher than the norm. The pace of M&A should accelerate through the end of this year and part of next.

Due to the much publicized situation in the housing markets, money is starting to tighten up a little as lenders begin to re-price debt. This means people using debt to finance deals are paying more for it and having a harder time raising the money. It's a little early to say that the fears associated with the subprime scares will derail most mergers or acquisitions, but it is certainly harder to put the financing packages together. None the less, there's a lot of cash on the sidelines.

Some signs point to the foodservice equipment and supplies industry being near the top of the M&A cycle. As earnings slow down, M&A activity follows suit. Justifying higher multiples in the face of declining sales and earnings forecasts is improbable.

The dealer side of M&A in our industry has drawn interest from five major buyers, including two very active private-equity players. The other three major buyers, strategic in nature, also continue to remain active in their pursuit.

When the dealer community draws quality buyers, sellers become abundant. We have just come through a period of very little activity on the dealer side of M&A. Having quality buyers paying good multiples will certainly keep the dealer M&A market in this segment very active. Numerous first- and second-generation families continue to look to cash-out, given the right price and fit.

The foodservice e&s industry continues to search for business leaders whose models ensure significant growth in sales and earnings. We are beginning to see dealers and manufacturers whose business models are new, fresh and innovative. They continue to create “uncontested market space” through innovative strategies. These companies will most likely control the pace of M&A in our industry and command the highest premiums when sold.

The economy is at somewhat of a fork in the road. The mortgage market is very tight, which compounds the lack of home sales. The Federal Reserve has been doing its part to cut rates on short-term loans, which should ease the bottlenecks and keep funds flowing. The economy is still strong, as exports are flowing and the trade gap is shrinking, somewhat.

Thankfully, the consumer continues to spend, despite showing signs of fatigue. There's very little evidence that the credit crunch is moving from the lenders' mortgage desks to the business borrowing side of the office. This is a good sign for the M&A marketplace. Our industry should see a number of deals happen in the coming months as a result. I guess you could say that I am cautiously “optimistic.”

rrosati@tampabay.rr.com