by Craig Mullett, Branison Group 
As we forecast at the beginning of 2010, the year just past showed an increase in merger-and-acquisition (M&A) deal volume across the interconnect sector. Deals tracked by Branison Group showed 29 deals announced or closed in 2010 compared to 24 deals in 2009 - a volume increase of 21%.
The prediction that a number of larger deals (over $100 million) would occur was confirmed through two significant acquisitions. Tyco Electronics announced the acquisition of ADC Telecommunications, paying $1.2 billion - a 44% premium over the prior publicly traded price. And The Carlyle Group announced it was buying CommScope, paying $3.9 billion - a 36% premium over the prior publicly traded price.
The dynamics that drove the deal market in 2010 are forecast to continue into 2011. These include the slow growth in the economy, which makes acquisition a necessity for large connector companies that want to show revenue acceleration. The rebound in the credit markets and the cash on corporate balance sheets has enhanced the "ability to buy" and meet seller expectations (which have been reduced through the shock of the economic crisis). The trend toward consolidation of approved vendor lists and the requirements of global capacity by OEMs continues to pressure smaller interconnect players, who will explore selling rather than risk all their capital on foreign expansion.
This pressure combines with the extension of the favorable tax-rate environment to encourage private owner and private-equity-backed companies to sell. The stabilized economy also allows buyers to value businesses using a set of financial statements that has been normalized through 2010, rather than with the almost universal dip experienced in 2009. Taken together, these trends are a very favorable mix for continued deal making in the new year.
Craig Mullett is president of Branison Group, a buy-side M&A boutique with expertise in the interconnect market.
Also authored by Craig Mullett: Why an M&A growth strategy trumps R&D for connector companies
