In response to Standard & Poor’s report on the likely increase in M&A activity in 2006, RER last week spoke with industry consultant and merger and acquisitions specialist Gary Stansberry of Hageman, Stansberry & Associates, based in Arlington, Texas, and Cameron Park, Calif.

RER: Are you seeing evidence of increasing merger and acquisition activity?

Stansberry: In 2005, we have seen a higher level of interest in acquisition than in previous years. We have been telling clients that 2005 has been as good a year to sell as we’ve seen since the frenzy of the late 1990s. We expect 2006 to be another good year for acquisitions as long as the economy remains strong, as well as overall construction spending.

RER: How did 2005 differ from previous years?

Stansberry: The biggest change in 2005 was in previous years we had to work hard to find prospects and the right fit for a particular business. In 2005, we have been able to attract multiple serious prospects to every client that we had. There are national and regional companies looking to expand their footprints.

It also helps that some of the financial markets are looking a little more favorably on the equipment rental industry. Lenders are more willing to loan money for equipment and for acquisitions and the financial results for the industry as a whole have been a lot better. Now is a good time to expand.

Several larger companies went through difficulties and the perception was that it was a bad industry and the investment community kind of threw the baby out with the bathwater. Now construction and construction equipment is back in vogue and the investment community has seen that when a company is well-run and well thought out, that it can make money in this industry.

RER: How does this period differ from the consolidation period of the late ‘90s?

Stansberry: I’ll tell you one thing we’ve had to caution some of our clients on and that’s not to confuse this activity with the late ‘90s when some crazy multiples were paid. Back then an owner could probably get seven offers and turn it into a bidding war. Companies now are going to be much more methodical. It’s going to be deals that make sense geographically, with product lines that fit for the acquirer. You’ve got to have well-maintained facilities, late-model, well-maintained fleet. You’ve got to have infrastructure in place employee-wise, and you’ve got to show strong gross growth trends and strong financial trends. You can’t just throw something together and hope that it’s going to fly, or if you have a marginal business that somebody will sweep you off your feet. What you have has to be presented to the acquirer properly and if there are any hiccups along the way, they have to be fully explained. The seller will get a fair price, but not an unrealistic multiple. It has to make business sense for the acquirer.