Signs of Strength, Weakness in 2011

Some of the largest U.S. banks have increased their lending to companies, according to researchers at Moody's Analytics. The Wall Street Journal reports this is a sign that hiring may be around the corner, as a percentage of loans normally goes to business expansion.

According to JPMorgan Chase & Co., lending to companies with revenues between $10 million and $500 million rose by 7 percent in 2010, while lending to smaller firms rose 40 percent. Moody's Analytics estimated lending to businesses rose 0.2 percent to $1.22 trillion in the fourth quarter and that commercial lending would rise 3 percent next year. That 0.2 percent rise was the first increase in two years, the Journal said, so this could be a trend with legs.

Early indicators from those who sell material handling equipment are promising—at least for those who sell to the commercial sector.

“Most material handling companies I have spoken with are already seeing a nice increase in quote requests and orders from their customer base,” says Mark Juelich, executive director of American Warehouse Systems of Minneapolis and member of the MHEDA (Material Handling Equipment Distributors Association) board of directors. However, since Juelich’s company does most of its business with Federal Government agencies, he’s concerned that government spending on material handling products hasn't increased over the last several years in spite of stimulus funding and base realignment and closure (BRAC) monies.

“Competition has increased in the Government sector because of the decrease in commercial spending so there is less work to be had,” he continues. “To make matters worse, most of the stimulus and BRAC money has already been spent and 100% of the BRAC funds have to be spent before Sept. 30 2011. This will worsen the Government market for material handling equipment by a marked amount as the BRAC funds were a major driver for the procurement of our products.”

Nevertheless, Juelich’s optimism about commercial business growth this year seems to be well founded. Another indicator supporting that optimism is talk of an increase in mergers and acquisitions. After several years in which worldwide M&A activity dropped steeply, 2010 was a recovery year both worldwide and in the U.S. According to Frank Aquila, a partner in the Mergers & Acquisitions Group of Sullivan & Cromwell LLP, corporate dealmaking could rise dramatically in 2011.

What makes this news more promising for the companies involved is that M&A deals struck during soft economic periods tend to yield higher returns than those completed during economic booms.

“After almost three years of difficult economic times, companies are seeking growth,” Aquila said in a recent blog. “If organic growth is not available to them in the current slow economy, then an acquisition can provide it. In addition, companies have been able to identify their weak spots during the recession, and acquisitions are an effective means of filling those gaps.”

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