Corporate Dealmaker Forum, Deceber 28, 2007:
Alan Alpert, a senior partner and leader of the global and U.S. M&A transaction services practices for Deloitte, has given CD Forum a quick-hit list of trends he's seeing for the New Year. David Carney, a principal with Deloitte Consulting LLP, also contributed to the list.
With corporate cash balances at their highest levels since 1985, strategic buyers have a near term market advantage. Savvy buyers with clear strategic growth objectives should be able to capitalize on shifting market dynamics driven from the credit crunch and general economic uncertainty, including less competition from PEIs and the need to bolster balance sheets or merge in competitive segments.
Stagnating capital deployment from the war chests that PEIs have amassed in recent years doesn't mean PEIs will sit idle on the sidelines while credit markets remain tight. Funds are looking for alternate transaction scenarios outside their typical space, such as portfolio company add-ons, smaller deals, bigger equity checks, private investments in public entities (PIPEs), joint ventures and/or minority stakes. With near-term exit strategies potentially impacted by economic uncertainty, some PEIs are focusing on improving portfolio companies’ performance and reevaluating debt loads on highly leveraged companies.
The emergence of new sources of capital and currency movements has created a new playing field for cross-border investment. Outbound activity from China and Japan is on the rise; PEI expansion into central eastern Europe is providing opportunities for larger equity stakes; and the BRIC nations are becoming a larger force in the world economy and deal making—with growing inbound and outbound activity. U.S. companies and assets hold particular appeal for foreign investors wanting to diversify their investment portfolios, and the role of sovereign wealth funds can't be ignored as they emerge more frequently at the deal table and potentially look to partner with PEIs or take controlling stakes.
Interest in infrastructure has crossed the pond into to the U.S. With an ageing infrastructure and increasing number of U.S. municipalities looking to monetize public assets, the U.S. is a greenfield opportunity for infrastructure deals. Despite the potential regulatory and political hurdles inherent in these transactions, more experienced offshore investors/operators and newly raised U.S. infrastructure funds are bidding on U.S. assets and bringing alternative investment structures and vehicles to the market.
In the wake of the deal boom, companies will need to reconsider the strategies driving previous mergers and acquisitions and whether transactions will realize expected synergies. Companies need to take a candid self assessment on their deals and take a "Day 2" approach to reignite and accelerate synergies or consider alternate means to create value.