Wednesday, December 31, 2008

PwC: 2009 M&A to be fueled by 'merger of necessity'

- Baz Hiralal, The, December 31, 2009:
Robert Filek, a partner in PricewaterhouseCoopers' transaction services group -- and a former CD Forum moderator -- said "troubled companies will look to align with larger, stronger players in order to survive, creating the perfect storm for mergers of necessity," PwC said in a lengthy report that the deal landscape will be dominated by distressed investments across sectors including financial services, automotive, consumer products and retail.
The report analyzes major sectors including energy and healthcare, among others. It notes the new administration's goals include expanding access to quality and affordable health insurance, modernizing healthcare, reducing costs, and promoting public health, prevention and wellness. "This will create an uptick in 2009."
PwC also notes a "wild card," posing this question: Could public company valuations get so low that the public-to-private transaction could re-emerge? We'll see what the new year brings -- hopefully some looser credit markets.

Go to the PwC 2009 M&A report

Friday, December 12, 2008

E&Y: 2008 M&A recap and '09 outlook

Ernst & Young has issued a report on mergers and acquisitions that shows 2008 deal volume slowed to 2003 levels, valuations fell, and cash rich corporations are shopping cautiously. The report notes even corporations with cash on hand and strong balance sheets -- which previously faced competition from PE firms -- are now confronted with new players arriving on the scene: sovereign wealth funds and other foreign buyers looking to acquire undervalued and distressed U.S. assets.
E&Y makes note that in 2009 that those without a certain level of liquidity will need to figure out a way to re-engineer their capital position to survive the current cycle.
The report also contains numbers on private equity, emerging markets and a breakdown for M&A in the financial services, pharmaceutical, oil and gas, media and entertainment, technology, and auto sectors.

Wednesday, December 10, 2008

Global I.P.O. Activity Hits 13-Year Low

Ernst & Young has released its Global I.P.O. update and it should come as no surprise that the numbers are dismal.
The total number of global initial public offerings brought to market over the last 11 months was the lowest since 1995, according to the survey.
A total of 745 I.P.O.s worldwide raised $95.3 billion in capital in the first 11 months of 2008, compared with 1,790 I.P.O.s raising $256.9 billion over the same period last year.
So far this year, 298 I.P.O.s have been postponed or withdrawn and I.P.O. activity is at the lowest level recorded over the same 11-month period since 1995, which saw 374 I.P.O.s raise $52.4 billion in capital between 1 January and 30 November, according to data from Dealogic
Full-year figures for 2008 aren’t expected to show any improvement on the bleak performance thus far, the report said. The poor showing is particularly stark when compared with 2007, when a record-breaking 1,979 deals were completed, raising $287.1 billion.
Go to Press Release from Ernst &Young via MarketWatch »

Monday, December 08, 2008

Predicting More Pain for M&A

The worst is yet to come for the mergers and acquisitions market: That is the conclusion of a new analysis by Bernstein Research, which projects that the drop-off in M&A activity will accelerate in 2009 and won’t bottom out until 2010.
Such a prolonged decay would be a blow to the bottom lines of Morgan Stanley and Goldman Sachs, which are now more dependent on the revenues generated from deal-making because they can no longer rely on their trading arms — until recently heavily leveraged — to rake in the dough. It could also have a devastating effect on boutique investment banks, such as Greenhill and Evercore, which draw the bulk of their income from advisory work, the report said.
For most industries, the merger game is a pro-cyclical business. Strategic M&A activity has historically been correlated with favorable economic conditions. The same seems to be true of private equity deals, according to Bernstein’s analysis.
Bernstein projects that total M&A volume, including private equity and strategic deals, will decline by 25 percent in 2009 from the previous year, followed by a 15 percent year-over-year decline in 2010. This implies that the trough of the M&A market will be in the second half of 2010 and will mark a 45 percent decline from the peak 2007 levels.
That drop-off implies that peak-to-trough advisory revenues will decline by 52 percent. That is apt to hurt Goldman Sachs more than Morgan Stanley, because Goldman is more dependent on advisory revenue than its uptown rival, the report suggested.
There is a bit of a silver lining. M&A activity is still hot in some sectors where there isn’t a lot of emphasis put on leverage — like energy. Also, industries such as health care, which are not as affected by the downturn in the economy, should continue to be a source of deals, the report said.
And it could have been worse. The projected 45 percent decline this cycle is nowhere near as steep as the one that occurred in the last downturn from 2000 to 2003, after the tech bubble burst. Back then, M&A activity saw a peak-to-trough decline of 70 percent.
– Cyrus Sanati, NYT DealBook

Monday, December 01, 2008

Postmortem: Nearly as Many Cancelled Mergers as New Ones

Deal Journal - - December 1, 2008, 10:51 am
Postmortem: Nearly as Many Cancelled Mergers as New Ones
Posted by Heidi N. Moore
Deal Journal readers, welcome back from the Thanksgiving weekend. Let us catch you up on things in the deal world.
Monday’s disheartening statistic du jour comes from Thomson Reuters, which totted up the effect of last week’s abandoned $188 billion offer for Rio Tinto by BHP Billiton. (Deal Journal puts the acquisition price of that deal at $66 billion, but Thomson Reuters includes in the price the Rio Tinto debt BHP would have assumed in a deal as well as the value under the original share price.)
By that counting, the collapse of the BHP-Rio Tinto deal pushed the seesaw of merger volume to a rarely-seen balance: the value of busted mergers in the fourth quarter is nearly equal to the value of the mergers that were signed.
According to Thomson Reuters data, there have been $322 billion of withdrawn M&A deals in the fourth quarter, compared with $362 billion of announced deals. For every 100 mergers or acquisitions announced in the fourth quarter, seven were called off.
It probably won’t stop there. There are some gigantic proposed deals still very much on the wire. The squeeze in the credit markets has made it highly unlikely that Swiss pharmaceuticals giant Roche Holding will find banks willing to underwrite the $45 billion loan it needs to buy the majority of Genentech it doesn’t already own. The $42 billion takeover of BCE may be scuttled by an accounting firm’s preliminary opinion that the parent of Bell Canada wouldn’t be solvent after the deal.
Investment banks are already awash in losses and will dearly miss the accompanying lost merger fees. The BHP-Rio deal alone would have meant $304 million in fees spread out across a coterie of 16 banks including UBS, BNP Paribas, Goldman Sachs Group, Gresham Partners, Lazard, HSBC Holdings, Merrill Lynch and Citigroup, Rothschild, Deutsche Bank, Macquarie Group, Societe Generale, Morgan Stanley, JP Morgan Cazenove, Credit Suisse Group and Royal Bank of Scotland Group.
Of course, what the banks lose in merger fees on busted deals they often gain in peace of mind. A dead deal, after all, means that the banks don’t have to underwrite tens of billions of dollars of loans for which there are few buyers.