We haven't updated our WSJ Headlines Economic Gauge since January because it was indicating consistently positive results in the economy—that is, until June of this year, when it headed decisively negative. (Followers of our blog will recall that we created our WSJ Headlines Economic Gauge under the premise that the count of the Wall Street Journal finance-related article headlines with a positive, neutral, or negative tone can provide an indication of the perceived health of the economy.)

PRESS RELEASE
April 4, 2011
San Francisco, CA

Biff Barnard and Jeanne Montague, the founders of Barnard/Montague Capital Advisors, today announced that David B. Sloan has joined the firm as a partner.

Recently, I served as the moderator of a panel of middle-market focused investment bankers sponsored by the Association for Corporate Growth - San Francisco Chapter. The audience was comprised of business owners as well as private equity professionals, bankers, lawyers, accountants and other advisers to middle-market companies.

Review of the First Half of 2010

Many observers are commenting that M&A activity is slowing and that the trends are indicating a weak second half. However, as it pertains to middle-market companies, the statistics are somewhat misleading. It is true that announced global M&A activity remained stable during H1 2010 at $976 billion (H1 2009 was at $977 billion), and that announced U.S. H1 2010 M&A activity, at $339 billion, was down 5% from H1 2009 (at $358 billion)—according to Thomson Reuters. However, M&A volumes for H1 2010 for deals of less than $500 million were up 39% over H1 2009. Another interesting change is that M&A activity backed by global private-equity funds for Q2 2010 totaled $40 billion, which is an increase of 33% over Q1 2010 and an increase of 125% from Q1 2009, with year-to-date activity up 102% from H1 2009. These are all clear signs that domestic middle-market activity is accelerating!

As we enter 2010, there is an increased amount of optimism about our economy and middle-market M&A activity being expressed by many of the people I talk with – business owners, middle-market focused private equity and sub-debt professionals, other investment bankers, lenders as well as other advisors to middle-market companies.

For the first time since we started tracking it in March, our WSJ Headline Economic Gauge for the month of October recorded more positive headlines (49%) than negative (42%). Certainly a good sign BUT is it sustainable.

As the summer doldrums end and we head into the 4th Quarter of 2009 with few signs of significant near-term improvement in the economy as it impacts private, middle-market companies, maybe it is time for company owners to reconsider a recapitalization.

Everyone seems to be asking, “When will the economy turn around?”. I know how to tell with certainty when it is turning; I call it the <em>Wall Street Journal</em> Headline Economic Activity Gauge. But before I explain how it works, I want to talk a bit about what we hear from our government as well as from “Main Street” that banks are not lending and, until they do so, our economy won’t turn around.

Many middle-market company owners are asking us and themselves this question. In order to provide some guidance to business owners and their advisors, we are in constant communication with strategic and private equity investors and lenders to understand their investing appetite as this recession unfolds. Additionally, during the week of January 19, I had the opportunity to attend several “economic forecasts” presented by a number of well respected economists. What follows is a summary of what I am hearing as it pertains to valuations of middle-market companies.