PhillyDeals: For better or worse, M&As are way down

"If the mergers-and-acquisitions business were a movie right now, we'd be 'Crouching Lender, Hidden Seller,' " says Philadelphia investment banker

Andy Greenberg

.

U.S. midmarket M&A deals fell to 21 in the first half of 2008, from 56 in the same period last year and 88 in first-half 2007, says GF Data Resources L.L.C., a Philadelphia deal-tracking firm that Greenberg co-owns.

The firm counts M&A by polling 128 U.S. private-equity firms on deals worth $10 million to $150 million every three months.

Maybe it's tough to feel sorry for deal-makers deprived of their lucrative fees for buying and selling companies. Americans have learned to associate M&A with job cuts and service disruptions.

But "deal flow" is also a test of how much banks, investors and big companies are willing to invest in new workers, construction, and purchase orders, which the nation needs now.

The biggest private-equity firms are sitting on piles of cash they raised in the mid-2000s, and they're eager to buy up assets at bargain prices. But they're having a tough time getting owners - even old guys ready to retire - to agree to sell below the peak levels of 2006-07, Greenberg told me.

Greenberg says he believes the larger economy is starting to recover. But the big companies that are most likely to pay full price for smaller ones are still uncertain if acquisitions today will pay off anytime soon. And banks that normally finance deals are "digesting their troubles" instead of gambling on growth.

Paul Hernandez-Cuebas beat the odds: He got a local bank to help finance a new Web-based software service from Food Connex, his Bucks County distribution- and inventory-tracking software company.

Food Connex is a small ($1.5 million per year sales, 10 employees) firm, based in Furlong, that counts Amoroso's Baking Co. and Vincent Giordano Corp. among its clients.

Today it is rolling out a "software-as-a-service" system, VictualNet, that allows distributors to track sales, inventories, customers, and suppliers from laptop, truck-based, or office personal computers for $199 per month. It lets "anyone with a laptop and a phone jack" set up a food distributor, says Hernandez-Cuebas.

Hernandez-Cuebas and his bank, Univest National Bank & Trust Co., of Souderton, put up nearly $1 million to build and market VictualNet.

"Lots of delivery systems are moving toward a Web-based product. We think he's first in the market with a product that meets the needs of the customer," Paul Maeglin, head of business lending at Univest, told me.

Initial clients for VictualNet include distributors for Florida-based Boar's Head Provisions Co. Inc., confirms Rick Bellucci, the Boar's Head distribution executive.

Lincoln National Corp.

, the Radnor annuities and life insurance company that pays for its name on the Eagles stadium, won't likely buy back the $900 million invested by the

U.S. Treasury Capital Purchase Plan

until 2011, writes

Sandler O'Neill Research

analysts

Edward Shields

and

Paul Newsome

, after meeting with Lincoln

chief executive officer Dennis Glass

and top aides.

Sandler says Lincoln has more than enough cash to cover likely losses, thanks partly to its pending sale of Center City's Delaware Group mutual funds to Australia's Macquarie Group Ltd. The researchers add that neither Lincoln's reputation nor its operations have been hurt by the dividends it's paying taxpayers ($4.6 million last quarter), or by the embarrassments that can follow when you take the government's money.

Wilmington Trust Corp. is resisting calls from bank-watchers like Janney Montgomery Scott L.L.C. analyst Stephen Moss to raise capital by selling new shares.

Moss noted in a report yesterday that the bank says 13.5 percent of its loans were "substandard," "on the watch list" or "doubtful" at midyear, raising the specter Wilmington Trust will need more cash despite a government investment.

But Ellen Roberts, the bank's investor-relations chief, says actual loan charge offs hit an annualized 1.5 percent last quarter, half the average for U.S. regional banks. She says investors don't want their stock diluted - and the bank won't do it just to please brokerages looking for shares to sell.