Friday, October 24, 2008

Lipton, Friedman and Rice on the Future of M&A

NYT DealBook, October 24, 2008
Three high-powered figures in the financial industry gathered at New York University’s law school on Thursday to discuss the future of mergers and acquisitions in the post-credit-bubble world.
The panelists — Stephen Friedman, the retired chairman of Goldman Sachs and the current Chairman of the Federal Reserve Bank of New York; Martin Lipton, the founding partner of the law firm Wachtell, Lipton, Rosen & Katz; and Joseph Rice III, the founder and chairman of private equity firm Clayton Dubilier & Rice — took turns discussing the challenges and opportunities ahead, as well as reflecting on the current economic crisis.
Mr. Rice said he was convinced that “human greed” took control of the system. But the bubble was egged on, he added, because “there was clearly too much capital around” and “people needed to find something to do with it.” He went on to say that “there is no question that there will be more regulation.”
As for the future of private equity, Mr. Rice sounded optimistic and expressed no doubt that it would make a comeback. “As respect to the buyout business, it is not going away — it’s comatose right now,” he said. “We will see a series of small deals next year and then they will grow in size… It is a perfectly good business, and it’s going to be around as long as there is a financial institution.”
Mr. Friedman spoke at length about the current crisis, which he described as the greatest financial panic since the Great Depression. Part of the problem, he said, was that “people will play the way you pay them,” meaning that the incentive structures that were in place encouraged bad lending and faulty business practices. He said he blamed the banks, consumers and the rating agencies for playing a part in the financial debacle.
He also lashed out at Wall Street bonuses, which he described as a “perverse incentive” that were “structured in a sort of way that you don’t have to give it back.”
Mr. Friedman praised regulators for their decisive and strong actions in 2008, calling them “heroic.” But he said that no one can say they had “done a first-rate job before then.”
Mr. Lipton, pictured above, spoke of a new financial order that he said will be dominated by large banks and filled with lots of smaller boutiques. “Capital raising will be in the hands of the big universal bank,” he said. “They will have the capital and the networks to do it.”
He said he believes the current economic crisis will last between three to five years, but was upbeat about the future of M&A.
“There will always be M&A,” he said, but added that “M&A is very psychological, and C.E.O.’s don’t like to go their boards in this type of economy” and ask to do a deal.

Tuesday, October 21, 2008

Deal Making Surpasses $3 Trillion

October 21, 2008, 1:12 pm
Posted by Stephen Grocer - DealJournal -
Perhaps you didn’t hear the M&A gong Monday, but global deal volume has passed $3 trillion–the fifth time that has happened though, not surprisingly, it took roughly three months longer than it did last year.
It did so on the backs of the new kings of deal making. No, not Henry Kravis or Stephen Schwarzman or Steve Ballmer or any other titan of industry, for that matter. No, this year’s M&A king makers earn far less, but wield far more power and capital. They are Hank Paulson and Ben Bernanke and, across the pond, Gordon Brown and Alistair Darling.
At a time when the financial crisis is sapping the life out of M&A–$149.1 billion of announced deals have been withdrawn since Sept. 1–the dramatic interventions of the U.S. and British governments have helped propel M&A activity in the financial sector, according to Dealogic.
Government investment in financial institutions has reached $76 billion this year, according to the data. That is almost eight times as much as in all of 2007, the previous high water mark. And this year’s total doesn’t include the planned U.S. investments in nine banks, which will top $120 billion, or the number of deals the federal government had a hand in orchestrating–think J.P. Morgan-Bear Stearns and J.P. Morgan Chase-Washington Mutual.
At the very least, the increased role of governments is representative of numerous issues buffeting the M&A marketplace. With the credit markets and global financial industry both frozen, governments are lenders and buyers of last resort.

Friday, October 17, 2008

Lehman Brothers Sale

FRI 17 Oct 2008
An auction of Lehman’s Neuberger Berman unit and other investment management bits and pieces moved closer yesterday with bid procedures getting clearance from a New York judge.Private equity groups Bain Capital and Hellman & Friedman agreed last month to purchase Lehman’s prized asset management unit for $2.15 billion, and they will be the lead bidders at an auction for the unit in December.In a status update prior to the judge’s ruling, Lehman’s lead attorney, Harvey Miller, said prosecutors had opened three grand jury investigations into the investment bank’s demise. The New York Post reported that disgraced CEO Dick Fuld is among 12 Lehman executives being subpoenaed. Fuld, questioned by a U.S. congressional panel earlier this month, denied deceiving shareholders.Politicians and the public are calling for heads to roll on Wall Street. Looking into Lehman are federal prosecutors as well as at least one state attorney general. And the FBI is in the early stages of examining mortgage finance companies Fannie Mae and Freddie Mac and insurer American International Group, which were bailed out by the government after getting caught in the credit crunch.Did anyone actually understand the rocket science behind the engineering of the credit default swaps and other complex financial tools that blew up behind the scenes? If not, then it might be a hard sell to convince anyone that investors were intentionally misled.In the brave new financial world that emerges from the chaos of the ‘08 crash, will Wall Street executives be expected to understand everything their firms are doing? Sounds reasonable, if unlikely.

Monday, October 13, 2008

United Technologies Withdraws Bid for Diebold

United Technologies said on Monday that it has withdrawn its $2.6 billion offer for Diebold, the maker of automated teller machines and electronic voting machines.
It is the second offer withdrawn on Monday, after Waste Management withdrew a hostile offer for fellow garbage collector Republic Services. Waste Management cited the turbulent markets as its reason for pulling its tender offer.
In a short letter sent to Diebold, United Technologies’ chairman, George David, cited Diebold’s continued refusal to hold talks or release financial information to its unwanted suitor. United Technologies had offered $40 a share, after having pursued Diebold for two years.
“We had hoped we could negotiate a transaction that would have created substantial value for both your and our shareholders,” Mr. David wrote in the letter. “It’s unfortunate this won’t happen.”
In Diebold, United Technologies sought to expand its electronic security business with one of the field’s largest players. Last year, United Technologies bought Initial Electronic Security Systems for about $1.2 billion.

Tuesday, October 07, 2008

PE Fund-Raising Still Going Strong. Buyout Shops, Not So Much

October 7, 2008, 6:30 am
Posted by Deal Journal
The investors who give private-equity firms the money to do deals still are plowing cash into the asset class, but increasingly it is being funneled away from buyout funds to more specialized investors.
Three-quarters of the way through the year, fund-raising by North American private-equity firms–a category that includes buyout, venture capital, mezzanine, distressed and several other types of firms–is ahead of last year’s pace. Through the end of September, 264 funds had raked in $222.6 billion, well ahead of the $200.4 billion raised by 298 funds at this time last year, according to data from LPSource.
That may seem a little nutty, given that the freeze-up in credit markets and the slower-growing economy stand to have a big impact on the private-equity asset class. But after the last downturn, in 2001 and 2002, many investors, known as limited partners, stopped investing in private equity, which turned out to be a bad move, as funds raised at that time eventually proved to be big winners. LPs say they have learned that lesson and will keep investing this time around.
That isn’t to say they aren’t hedging their bets. Buyout firms, which have been hardest hit by the credit crunch, raised $103.3 billion across 77 funds, down 12% from 98 funds that raised $118 billion last year. And venture capital fund-raising was flat, with 107 funds raising $19.7 billion compared with 103 funds raising $19 billion a year earlier.
Other types of firms–those perceived as most likely to benefit in the current environment–gained ground. Mezzanine funds, which invest in debt that also carries characteristics of equity, continue to have a strong year, gathering in $36.9 billion across 13 funds, compared with the $3 billion across nine funds through the third quarter of last year. Distressed firms also have well exceeded last year’s total through the third quarter. Eighteen funds have raised $37.9 billion, up 28% from $29.5 billion raised by 16 funds at this time last year.
“Instead of halting or materially decreasing investing in private equity–as was done in 2000 to 2002–this time around investors are looking to be more tactical investing capital in areas which may benefit in the current economic and business cycle,” said Brett Nelson, head of private equity at consulting firm Ennis Knupp + Associates.
–Keenan Skelly is a reporter for Private Equity Analyst, a Dow Jones publication and a contributor to Deal Journal.

Thursday, October 02, 2008

CD Forum: Dealmakers take a measure of the market

From The, October 2, 2008:

The opening panel at The Deal's Corporate Dealmaker Forum reviewed the current state of an M&A market going through one of its most turbulent times in years.
Dealmakers Kenneth R. Meyers, the vice president of mergers and acquisitions at Siemens Corp.; David Drake, president of Georgeson Inc.; and Douglas L. Braunstein, J.P. Morgan Chase & Co.'s head of investment banking discussed the raft of opportunities opening up to corporate buyers.
"Debt is more expansive," said Drake, "but the prices are cheaper."
"Capital on balance sheet and liquidity are critical," Braunstein added. "Having access to liquidity and cash creates a great opportunity for certain corporate buyers. Those that are prepared for this are going to have some great buying opportunities."
Siemens' Meyers agreed, commenting, "These are the kinds of times that it paid off to be conservative and have a strong balance sheet. There are structural advantages to being a large corporate now."
All of the panelists agreed that the best opportunities for acquirers lay in the future since valuations will likely continue to fall, although the mindset of shareholders at target companies is proving resistant to change.
"Over the past year we've seen old habits dying hard," said Georgeson's Drake. "A lot of arbs and hedge funds are really getting burned as private equity firms and others walk away from deals." Citing the Microsoft Corp.-Yahoo! Inc. and Take-Two Interactive Software Inc.-Electronic Arts Inc. cases, he said, "In both cases some investors lost a lot. I do think it's going to be a game of chicken between the buyer's and the target's shareholders now that prices are coming down." "Pricing hasn't come down enough for people to take advantage of opportunities, but I think we're only about three to four months away from that," Braunstein added. "The buying power of strategics are eventually going to align [with valuations]. The problem is that prices haven't yet fallen enough for that to happen. When those align, I think you're going to see a lot more activity at that point." - George White