The industrial services sector is undergoing a resurgence as merger and acquisition activity continues to grow. As with most sectors, transaction activity decreased substantially after the economic downturn in 2008. The industrial services sector was hit particularly hard due to cutbacks in spending by the private and public sectors.

Summertime typically signals a slow down for mergers and acquisition activity, especially for technology-based businesses. The Nasdaq’s lackluster performance during summer indicates investors tend to ignore this sector in anticipation of the latest technology gadget or new game-changing systems that normally are unveiled as autumn approaches.   However, recent M&A activity impacting information technology (IT) companies servicing the healthcare industry has been far from stagnant.

America’s power sector is at a crossroads. Rising demand for clean forms of power is now juxtaposed against the growing need for inexpensive energy, creating a situation that is increasingly conflicted. Recent economic challenges have made decisions even more difficult for electric power producers. In 2009, electricity generation decreased 4.1 percent, settling at its lowest level since 2003, representing the largest decline in six decades. In addition to the recent economic downturn, expanding environmental policy and increasing prices of certain fuels have forced electric power producers to invest in alternatives to coal such as natural gas. Investment decisions also have been impacted by the recent accident at a nuclear power plant in Japan that, at least temporarily, diminished renewed enthusiasm for nuclear power expansion. Alternatively, renewable energy has been fully embraced by some for its clean energy benefits, federal production and investment tax credits and cash grants, as well as help electric power producers comply with state Renewable Portfolio Standards (RPS). Even in the face of uncertainty about future tax and energy policies, investment in renewable and conventional forms of power is expected to remain strong as older, less efficient power plants are retired and demand continues to build. The U.S. Department of Energy projects that demand will increase approximately 24 percent by 2035, rising roughly 1 percent per year. Which source of power will benefit the most is uncertain. What is clear is that all of these sectors have characteristics that will ensure future investment.

Power Sources
Key factors facing the power industry include:

Following a dynamic first half of 2011, M&A activity saw a slight decline in the third quarter. Volatility in the equity markets, global economic uncertainty, and seasonal slowing negatively impacted transaction volume. As skepticism in the market place continues to linger, buyers have been cautious in putting cash to work. Despite the challenges facing the market’s participants, deal makers remain committed as year-over-year performance gains traction.

Healthcare Transaction Activity

The total value of healthcare industry mergers and acquisition transactions within the mid-market as reported by Capital IQ in 2010’s 4^th quarter was not as robust as the 3rd quarter, which is surprising based on our expectations. However, in what is normally a period that sees a fall off from the traditional year-end pickup, transaction activity in 2011‘s 1^st quarter continued at a strong pace.   In fact, the aggregate dollar value of transactions below $1B within the past two quarters ($26BB) nearly equaled the value for similar transactions in all of 2009 ($29BB).

Americans are a demanding group but, when you cut to the chase, we can live with inconveniences. However, lack of power, and the accompanying implications on our life and lifestyles, would not be among those conveniences we could easily do without. Power is integral to all facets of our lives and, as society evolves, demand for power grows. As a result increasing demand for new and cleaner sources of power creates opportunities for investment as companies expand to meet demand or innovate to produce cleaner or more efficient power.

Lately the “L” seems to be missing from LBO’s (leverage buy-outs) as a result of the lack of leverage over the past few years. However the slower mergers & acquisitions activity in the healthcare market first seen in late 2008 has recently improved, undoubtedly partially driven by the renewed health of senior debt lending to support transactions.