Though it's not exactly a spree, companies starting to shop again

Is the nation's economy improving? Some local dealmakers think so, and say they are optimistic after seeing an increase in mergers and acquisitions compared with a year ago.

The nation's merger and acquisition (M&A) deals grew to 2,483 in the first quarter, up 26 percent from the fourth quarter and 33 percent compared with first quarter 2009, according to analytics firm Dealogic and Star Tribune research. Minnesota's M&A deals held steady compared with a year ago.

"It was a mild uptick," said Matthew Knopf, chair of the M&A group at law firm Dorsey & Whitney. Knopf said in April he already has seen more M&A activity compared with earlier this year, with financial buyers, along with medium and large businesses coming back into the marketplace. Knopf said he anticipates second-quarter results to be even better as long as there are no additional financial crises.

"You really have the full spectrum of buyers back," Knopf said.

Analysts say an increase in M&A deals is a sign the economy is improving because the buying and selling of businesses shows confidence in the marketplace and frees up financing that can be invested in other growing companies. In an upbeat report Friday, the Federal Reserve said the economy grew at an annual rate of 3.2 percent in the January through March period while inflation remained a very low 0.6 percent. Tame inflation gives the Federal Reserve Board room to keep interest rates low, a positive for financing deals.

Investment bank Houlihan Lokey conducted 15 M&A deals in the first quarter and closed another on April 2. Those deals included the sale of certain assets from its client, Minneapolis-based boat manufacturer Genmar Holdings Inc.

Genmar, once led by Minneapolis businessman Irwin Jacobs, filed for bankruptcy last year, with the majority of its assets purchased by Beverly Hills, Calif.-based Platinum Equity for $70 million. Boat brands purchased by the private equity firm included Ranger, Glastron and FourWinns.

"I think what we've seen is a dramatic increase in M&A activity," said Jason Price, a senior vice president at Houlihan. Price declined to discuss details regarding the sale, but said the bank ran a "competitive process."

Companies are shopping

Some local companies say they will increase their acquisitions this year. 3M Co. said it will spend $1 billion on acquisitions this year, up from $69 million in 2009. The company recently announced it will buy Canadian acoustic and thermal insulation manufacturer MTI Polyfab Inc. for $24 million.

But don't expect the amount of M&A deals to return to pre-recession levels just yet. Businesses still face a challenge of gaining financing for those deals, warned Jon Salveson, Piper Jaffray & Co.'s global head of investment banking.

"Everyone is talking about strategic activity, but in practice, it's not nearly as active as you might think," Salveson said. "I think the recovery of the banks is going to take some time, but continued profitability of the major banks will have a way of probably loosening the standards for credit, providing credit to complete deals."

Piper Jaffray was the sole local investment bank helping underwrite IPOs in the first quarter, one for Palo Alto, Calif.-based investment adviser Financial Engines Inc. and the other for Hayward, Calif.-based Anthera Pharmaceuticals Inc. Financial Engines raised $146 million in its IPO, while Anthera raised $46 million, Piper Jaffray said. Financial Engines, an investment advisory firm, went public at $12 and closed at 15.92 on Friday. Anthera, a biopharmaceuticals company, debuted at $7. Its shares closed at $7.07 Friday.

"There's no doubt it's improving," Salveson said. "We feel with the sustained recovery of the economy, those markets are going to come back [in] lock step. We feel pretty optimistic right now."