Wednesday, June 17, 2009

Study Projects Upsurge in M.& A. Activity

From, June 17, 2009:

The market for mergers and acquisitions could see some real growth in the coming months after more than a year of declining deal volume, according to a new joint study published on Tuesday by Thomson Reuters and JPMorgan Chase.
The study, which examines trends in the M.& A. sector, predicts that the current down cycle in deal activity could turn around in the second half of this year, tracking the expected upward growth in the world’s gross domestic product.
Deal activity is very closely related to economic growth. When people are feeling confident and money is available, deal volumes jump. Conversely, when the economy is on the downswing and money is tight, deal activity craters.
Deal volume as a percentage of G.D.P. peaked at the top of the last two economic bubbles: the dotcom bubble in 2000 at about 11 percent and the credit bubble in 2007 at about 8 percent.
Deal activity fell to nearly 4 percent in 2008 and continued to fall in the first half of 2009.
The study found that during the downturn in deals that followed the dotcom bust, M.& A. activity contracted for approximately eight quarters before it rebounded. The credit crunch cycle has so far gone through seven quarters of contraction. As such, total activity in mergers and acquisitions could bottom out during the current quarter, the study found.
Based on their hypothesis that the pattern between M.& A. growth and G.D.P. growth will repeat itself and rebound together, Thomson Reuters and JPMorgan project that global deal activity as a percentage of G.D.P. could reach 3.6 percent in 2009, 3.7 percent in 2010 and 4.5 percent in 2011, mirroring the upturn of 2002, 2003 and 2004.
When the data is matched with the International Monetary Fund’s forecast for global G.D.P. growth in the same years, deal volume could reach $2.6 trillion by 2011.
But the argument for such a spectacular recovery is based on trends seen since 1995, when the easy money policies instituted by the Federal Reserve and other central banks fueled growth and economic bubbles. A tighter monetary policy and stronger financial regulation limiting risk could return growth in the M.& A. market to levels below 2 percent that were seen during the early part of the 1990s.
– Cyrus Sanati
Go to Study from Thomson Reuters and JPMorgan »

Monday, June 15, 2009

Distressed deals: Strategics coming on strong

From The, June 15, 2009:
It's been nearly six months since we reported in The Deal magazine that more and more corporate acquirers were eying the distressed market for potential targets. So, did they arrive? If we narrow the definition of distressed deals to transactions involving a bankrupt seller, the answer is yes. According to The Deal Pipeline's bankruptcy M&A database, 79 corporations have acquired or been approved to buy assets from a bankrupt seller so far this year. That compares to 51 similar transactions in the same period last year, and 102 total in 2008. Looking more closely at this year's numbers, it's no surprise the automotive industry has seen the most action from corporate buyers of distressed assets. There have been 12 bankruptcy M&A deals involving a strategic buyer since Jan. 1. Highlights include:
Hertz Global Holdings Inc.'s (NYSE:HTZ) acquisition of Advantage Rent A Car Inc.
Lazy Days RV Center Inc.'s acquisition of 154 Fleetwood Enterprises Inc. trailer units
Penske Automotive Group Inc.'s (NYSE:PAG) acquisition of General Motor Corp.'s Saturn brand Workhorse International Holding Co.'s acquisition of Monaco Coach Corp.'s recreational vehicle divisionRetail was the next most active industry for corporate buyers, with nine transactions, including:
Winter Sky Retail Ltd.'s acquisition of Madhouse Ltd
Aurora Fashions Ltd.'s acquisition of Mosaic Fashion Ltd.
Sleepy's Inc.'s acquisition of Dial-A-Mattress Operating Corp.Strategic acquirers were also active in the media and energy industries, with six and seven transactions, respectively.For corporate acquires that have yet to dive into the deepening pool of bankrupt assets, be aware that the learning curve is steep. As Sullivan & Cromwell LLP partner Frank Aquila told us recently, even prenegotiated terms will likely be revisited in a bankruptcy sale. Still, as the data above indicates, the opportunities available may be too good to keep many strategics sidelined for long. - Suzanne Stevens

Thursday, June 04, 2009

Deal Activity Is Down 40% So Far This Year

From DealBook, June 4, 2009:

Mergers and acquisitions activity continues to languish this year as the fallout from the economic crisis lingers.
There have been $751.6 billion worth of deals announced so far this year, a steep 40 percent drop from the comparable period last year, according to Thomson Reuters. This decline represents the worst drop in deal activity for the period since 2001, when the recession then sent deal volumes down 52 percent from the prior year.
Regionally, European M.&A. showed the largest fall from the previous year, 48 percent, as investors balked at doing deals on the Continent. Meanwhile, the decline in deals in the United States was not quite so steep, falling 33 percent to $266 billion.
Global deal activity picked up a bit in May, with $186 billion in announced deals, up strongly from April when there was only $118 billion in announced deals.
But the majority of deals announced so far this year continued to be in the first quarter, when there were several huge deals announced involving pharmaceutical companies and government stakes in banks.
In fact, the two largest deals so far this year continue to be drug-related, with Pfizer’s $64 billion takeover bid for Wyeth and Merck’s $45 billion takeover bid for Schering-Plough.
The next two largest deals involve the British government’s taking stakes in two of Britain’s troubled banking giants, the Lloyds Banking Group at $22.3 billion and Royal Bank of Scotland at $18.6 billion.
Meanwhile, investment bankers are seeing a severe drop-off in their fees, which is sure to depress this year’s bonus pool. Global M.&A. fees for transactions completed in 2009 stand at $6.7 billion, according to Thomson Reuters estimates. That’s a 58 percent decline from a year earlier, when fees totaled $15.9 billion.
– Cyrus Sanati

Wednesday, June 03, 2009

Buyout Firms Face $400 Billion Overhang, June 3, 2009:
Private equity firms may be sitting on a record amount of dry powder, but that isn’t stopping them from continuing to stockpile for a future when deal-making comes back into fashion.
The private equity “overhang” — the difference capital raised and capital invested — stood at $400 billion as of April, an all-time high, according a report by the Alliance of Merger & Acquisition Advisors and PitchBook Data.
The capital backlog ballooned in 2008 when the credit crisis burst the buyout bubble, putting an end to the kind of high-flying deals that took Hilton Hotels and TXU private, but private equity firms kept racking up new capital commitments.
The mismatch between fund-raising and deal-making underscores the unsettled state of the industry. Buyout funds remain popular with investors, such as pension funds and institutions, but they have been distracted by troubled credit markets and problems at existing portfolio companies.
“This historic high of capital yet to be deployed by private equity creates a new deal paradigm and a challenge,” David Cohn, an A.M.&A.A. advisory board member and managing director at Mosaic Capital, said in a statement. “Deal-makers have to put down their pencils and dispense with historical spreadsheet analysis.”
Despite their bulging coffers, buyout shops haven’t slowed their fund-raising pace, according to The Deal. Private equity firms have raised about $30 billion in April alone, while fund-of-funds ponied up another $5.1 billion in fresh capital to invest over the past two months, the publication said, citing data from its Deal Pipeline.
So when will private equity firms start deploying the cash piling up in their war chests?
“The fourth quarter is going to tell the story,” Mr. Cohn predicted. “This summer is the time for a ‘boot camp’ for both private equity and intermediaries to refresh their deal flow and be prepared for the fall.”
Of course, private equity funds traditionally use two sources of funds to buy their portfolio companies: equity from their investors, and loans from banks. The latter is hard to come by these days.
So buyout chiefs may need to be creative as they seek to deploy the equity they’ve raised — at least, until banks turn the spigot back on again.
Go to Article from The »
Go to Article from VentureBeat »
Go to Press Release from The Alliance of Merger & Acquisition Advisors and Pitchbook Data via BusinessWire »