Finally, a Month for Giving M&A Thanks

By Stephen Grocer, WSJ Deal Journal, December 1, 2009:
The recovery in the M&A market may have finally gained some traction.
November ranks as the best month for deal making in more than a year. Global M&A volume hit $287.75 billion, more than double the year-earlier month’s total, according to Dealogic. Of course, November 2008 was the worst month for deal making in the past three years. But last month also marked a 93% increase over October and a 32% jump from September. U.S. deal volume, at $83 billion, more than quadrupled from a year earlier and nearly tripled from October.
More important than the numbers, though, were the signs that recovery in deal making just might be sustainable this time around. November’s M&A activity, for instance, wasn’t dominated by one large transaction. In fact, there were 40 deals valued at more that $1 billion announced in November, the highest total in more than a year, including three deals above $10 billion, according to the data.
That has all been helped by Wall Street’s willingness to once again open its checkbook. Nearly $30 billion in loans were announced this month to fund acquisitions or leveraged buyouts. Eight of the biggest announced financing deals were for heavily leveraged companies, signaling a higher risk appetite at banks.
The takeover battle for Cadbury is a prime example of this willingness to finance deals again. Nine banks have stepped in to provide $9.3 billion in financing commitments for Kraft Foods’ pursuit of the U.K. chocolatier. If Hershey decides to make a rival bid for Cadbury, both J.P. Morgan Chase and Bank of America Merrill Lynch are willing to provide $5 billion apiece in financing.
The willingness to lend also extended to PE firms. Two private-equity deals landed among the top 10 deals last month, and already private-equity deal volume is at its highest levels world-wide since the third quarter of 2008.
As the worst of the Great Recession recedes and stocks contiue to rally, companies are becoming more willing to deal. In a survey published last month by Ernst & Young, a quarter of 490 company executives polled said that they planned to do a deal within the next six months, and a third said they had M&A plans for the next 12 months. That sentiment comes at a time when the ability of firms to increase profits through cost cutting is becoming increasingly limited, leaving M&A as one of the few routes to increase revenue and profits.
That said, there are still dark clouds hanging over the M&A industry. The same Ernst & Young survey found that even though executives realize the present opportunity, 62% feel their ability to act will be constrained by the lack of available financing, among other reasons.