NYT DealBook, Monday, June 14, 2010:
Some bankers made rosy predictions for a big bounce-back in mergers and acquisitions this year. Yet deal volumes in the United States are recovering as if the recession just endured was run of the mill, Breakingviews says.
After two down years, the value of American corporate match-making is flat in 2010. That’s no boom — but if history is any guide, it’s also nothing for bankers to complain about, the publication says.
After declines of 41 percent in 2008 and 22 percent in 2009, the value of announced deals in the United States so far in 2010, at $322 billion, is just a fraction off last year’s pace. That pattern is in line with the last two recessions, according to Thomson Reuters data. The downturn of the early 1990s had three dry years, and the dot-com bust brought two.
So considering the depth of the latest recession, flat is the new up, Breakingviews argues. True, some on Wall Street had forecast a more robust rebound. Goldman Sachs predicted “a perfect storm for M.& A.” late last year, pointing to cash-stuffed corporate coffers — now at a record, according to the Federal Reserve — and benign capital markets. Greenhill & Company also predicted 2010 would be big for deal-makers.
But while last year’s fourth quarter showed a promising return of deal-making — like TPG’s buyout of IMS Health and Berkshire Hathaway’s acquisition of Burlington Northern Santa Fe — the momentum hasn’t continued, Breakingviews says.
Some may find that surprising. After all, while many companies achieved profit targets through cost-cutting during the economic downturn, the juice has probably been squeezed from that lemon. Acquiring competitors and eliminating overlap is another way to find cost reductions. For instance, while CenturyTel and Qwest have been cutting costs on their own, they now hope their merger will yield more than $600 million more in fresh savings.
The trouble is that even though the United States economy has stopped contracting, big risks still weigh on the animal spirits of executives, Breakingviews argues. Job growth is anemic and credit markets have had renewed volatility in the wake of Europe’s sovereign debt crisis. Such market turmoil may have played a role in scuttling Prudential’s bid for the American International Group’s Asian insurance business, and a $15 billion leveraged buyout of Fidelity National Information Services, the publication suggests.
Put it all together, and deal makers pining for more action should probably just consider themselves lucky to have any at all, Breakingviews says.
Go to Article from Breakingviews via The New York Times »
Monday, June 14, 2010
Friday, June 11, 2010
Private Equity’s $445 Billion Problem
NYT DealBook, Friday, June 11, 2010:
The private equity industry has $445 billion burning a hole in its pocket and it could soon turn into a problem, Investor’s Business Daily writes.
Buyout shops have raised — though are yet to deploy — that figure from institutional investors, according to the publication.
And if they can’t unload it in the near future, they may face a host a problems.
Investor’s Business Daily writes:
To realize the outsize profits investors expect, private equity firms would have to borrow two or three times that amount. But for the most part, credit spigots for such deals are still dry. At the same time, pinning down buyout targets is not that easy. Many potential sellers are balking at parting with corporate assets in the midst of a serious downturn.
Worst of all, the clock is ticking on that near-half-trillion war chest.
“Most funds legally have five or six years to invest that capital,” said Andrea Auerbach, managing director at Cambridge Associates, a consultant to institutional investors based in Boston. “It’s use it or lose it.”
If P.E. doesn’t start to spend that committed capital soon, investors may begin to pull out, the publication notes. At the same time deals that are done only to use the capital risk being ill thought through and potentially not very profitable.
Go to Article from Investor’s Business Daily »
The private equity industry has $445 billion burning a hole in its pocket and it could soon turn into a problem, Investor’s Business Daily writes.
Buyout shops have raised — though are yet to deploy — that figure from institutional investors, according to the publication.
And if they can’t unload it in the near future, they may face a host a problems.
Investor’s Business Daily writes:
To realize the outsize profits investors expect, private equity firms would have to borrow two or three times that amount. But for the most part, credit spigots for such deals are still dry. At the same time, pinning down buyout targets is not that easy. Many potential sellers are balking at parting with corporate assets in the midst of a serious downturn.
Worst of all, the clock is ticking on that near-half-trillion war chest.
“Most funds legally have five or six years to invest that capital,” said Andrea Auerbach, managing director at Cambridge Associates, a consultant to institutional investors based in Boston. “It’s use it or lose it.”
If P.E. doesn’t start to spend that committed capital soon, investors may begin to pull out, the publication notes. At the same time deals that are done only to use the capital risk being ill thought through and potentially not very profitable.
Go to Article from Investor’s Business Daily »
Thursday, June 10, 2010
Business Broker Chicago: The Importance of Reasonableness When Selling Your Business
Link to excellent article posted by Dave Kauppi:
http://businessbrokerchicago.blogspot.com/2010/06/importance-of-reasonableness-when.html
http://businessbrokerchicago.blogspot.com/2010/06/importance-of-reasonableness-when.html
Monday, June 07, 2010
And You Thought M&A Was Slow Last Year…
By Stephen Grocer, WSJ Deal Journal, June 7, 2010:
M&A recovery? Deals just around the corner?
That may be what Wall Street wants you to believe.
But the numbers tell a different story. The volume of deal-making during 2010 has been weak. Very weak.
U.S. announced deal volume is down 14.7% from the same period last year, according to Dealogic. In Europe, it’s off 6%.
Those numbers are made only more stark given the year-over-year comparison stretches back to a period in 2009 when economy was still mired in the worse financial crisis since the Great Depression.
Perhaps more troubling is the dearth of large deals. So far only seven deals valued above $10 billion have been announced globally, the lowest total in the past five years. Seven transactions rank as the lowest total in the past five years.
With so few big deals, the average deal size both world-wide and in the U.S. has plummeted to its lowest levels since 2003. The U.S. saw the steepest decline. Last year the average deal size in the U.S. was $309 million through the first five months. This year it’s nearly half that.
The only thing keeping the M&A business going is activity in the developing world. Deal volume in Latin America is up nearly two-fold, and 175% in India (admittedly off of small bases from 2009).
Perhaps the late Bruce Wasserstein will prove prophetic. Last summer the legendary deal maker said deal activty would not return to peak levels until 2013, and that the four years in between would see only a gradual increase.
Just consider today’s unemployment figures and consider this: If companies aren’t confident enough to hire, are they confident enough to pull a trigger on a deal?
M&A recovery? Deals just around the corner?
That may be what Wall Street wants you to believe.
But the numbers tell a different story. The volume of deal-making during 2010 has been weak. Very weak.
U.S. announced deal volume is down 14.7% from the same period last year, according to Dealogic. In Europe, it’s off 6%.
Those numbers are made only more stark given the year-over-year comparison stretches back to a period in 2009 when economy was still mired in the worse financial crisis since the Great Depression.
Perhaps more troubling is the dearth of large deals. So far only seven deals valued above $10 billion have been announced globally, the lowest total in the past five years. Seven transactions rank as the lowest total in the past five years.
With so few big deals, the average deal size both world-wide and in the U.S. has plummeted to its lowest levels since 2003. The U.S. saw the steepest decline. Last year the average deal size in the U.S. was $309 million through the first five months. This year it’s nearly half that.
The only thing keeping the M&A business going is activity in the developing world. Deal volume in Latin America is up nearly two-fold, and 175% in India (admittedly off of small bases from 2009).
Perhaps the late Bruce Wasserstein will prove prophetic. Last summer the legendary deal maker said deal activty would not return to peak levels until 2013, and that the four years in between would see only a gradual increase.
Just consider today’s unemployment figures and consider this: If companies aren’t confident enough to hire, are they confident enough to pull a trigger on a deal?
Tuesday, May 25, 2010
Latest ACG-Thomson Reuters Survey Shows Dealmakers Increased Optimism
After 18 months of pervasive gloom, dealmakers are increasingly more positive about the M&A environment, according to the twice yearly ACG-Thomson Reuters DealMakers Survey. The latest survey results, released at ACG InterGrowth® 2010 on May 5, reveal a sunnier sentiment about the dealmaking environment. While the last three surveys were consistently dreary, with more than 80% of dealmakers reporting a fair to poor M&A environment, the most recent survey reports that 85% of dealmakers expect an increase in M&A activity in the next six months. A year ago, only 56% predicted an increase. The survey, by the ACG and Thomson Reuters reflects responses from nearly 700 investment bankers, private equity professionals, corporate development officers, lawyers, accountants and business consultants in March and April 2010. Here are a few highlights:
Eighty percent of survey respondents identified the current environment as a buyer's market. 97% of corporate professionals expect strategic investments to accelerate in 2010.
The greatest drag on M&A activity today is sellers unwilling to sell at multiples offered, according to 38% of dealmakers. This is followed by the credit crunch, which has steadily decreased in importance as the biggest obstacle to M&A activity (27% today vs. 29% at year-end 2009, 33% one year ago and 43% 18 months ago.)
Thirty percent of private equity executives say that this year they expect the majority of their portfolio companies to experience job growth.
In the past 12 months, 35% of private equity firms say they have marked down their portfolio company values, 43% have held values steady, and 22% have marked them up.
Portfolio companies are showing signs of improvement. Seventy-four percent are performing above their prior year EBITDA, while 26% are performing below last year's EBITDA.
Some 53% of private equity respondents are concerned about the public's perception of private equity. This is an increase from 47% in December 2009.
Three quarters of private equity firms are concerned about a draft U.S. bill that would require advisors of private equity funds and hedge funds to register with the SEC, thus forcing more disclosure to regulators and investors.
A complete report on the survey results may be viewed here.
Eighty percent of survey respondents identified the current environment as a buyer's market. 97% of corporate professionals expect strategic investments to accelerate in 2010.
The greatest drag on M&A activity today is sellers unwilling to sell at multiples offered, according to 38% of dealmakers. This is followed by the credit crunch, which has steadily decreased in importance as the biggest obstacle to M&A activity (27% today vs. 29% at year-end 2009, 33% one year ago and 43% 18 months ago.)
Thirty percent of private equity executives say that this year they expect the majority of their portfolio companies to experience job growth.
In the past 12 months, 35% of private equity firms say they have marked down their portfolio company values, 43% have held values steady, and 22% have marked them up.
Portfolio companies are showing signs of improvement. Seventy-four percent are performing above their prior year EBITDA, while 26% are performing below last year's EBITDA.
Some 53% of private equity respondents are concerned about the public's perception of private equity. This is an increase from 47% in December 2009.
Three quarters of private equity firms are concerned about a draft U.S. bill that would require advisors of private equity funds and hedge funds to register with the SEC, thus forcing more disclosure to regulators and investors.
A complete report on the survey results may be viewed here.
Monday, May 24, 2010
M&A deals steady as credit, bottom lines improve
Crain's Cleveland Business, Monday May 24, 2010:
Mark Filippell, managing director of investment banking firm Western Reserve Partners, likened the increased activity he sees in the mergers and acquisitions market to the baby boom following World War II.
“The numbers are going to pop. M&A deals are happening,” he said. “It's like in 1946, when the soldiers are back for six months and someone says, ‘No babies are being born.' Well, look down the street; you see a lot of pregnant women.”
Mr. Filippell and others who spend their days looking at deals say that as credit has loosened and bad quarters start to roll off companies' books, the appetite of both buyers and sellers in M&A deals has risen dramatically.
While that pickup still doesn't translate into a pre-recession flow of transactions, it does mean buyers and sellers are pushing forward on deals they could not or would not entertain for the past year and a half or more.
Mr. Filippell said he has seen a number of letters of intent and that Western Reserve Partners “is running flat out” working on transactions, as are a number of M&A attorneys to whom he has spoken.
Stewart Kohl, co-CEO of private equity firm The Riverside Co., said the momentum really picked up in March, after incrementally improving for most of the second half of 2009. Both the number of companies for sale and the quality of those companies have been on the rise.
“What's beginning as a spring thaw is becoming a summer and fall avalanche,” said Mr. Kohl, whose own firm has made seven acquisition so far in 2010. “We're going to see more and more.”
Investment firm William Blair and Co., in Chicago, also noted that activity seemed to increase in March. In an April commentary, the firm said there had been 982 transactions announced in the United States for that month, a nearly 32% increase from March 2009.
Indeed, March marked the fifth consecutive month that the number of transactions increased as compared to the prior year. And the disclosed dollar volume of the announced transactions in March, $140.1 billion, was 72% higher than it was a year ago, according to William Blair.
The reasons for the increase, Mr. Kohl said, include the need for other private equity firms to make exits so they can reinvest their capital; small business owners who are getting older, sicker or simply want to retire to spend more time on the beach; a pending increase in capital gains tax rates that would reward owners who sold before year's end; and increased bank lending that make deals easier to complete.
Tire kickers abound
The deal flow is still “choppy,” said Doug Neary, corporate group chair at Cleveland law firm Calfee, Halter & Griswold, but it's increasing at a steady pace.
Mr. Neary, who also co-chairs Calfee's M&A practice, said earnings are getting better, increasing companies' worth, and proving to potential acquirers that the businesses are strong enough to ride out a bad economy.
The general consensus, he said, is that there will continue to be an increase in activity throughout 2010; Mr. Neary said he expects a “frenzy” by the end of the year.
Nonetheless, he said buyers remain cautious and are “kicking the tires more diligently, now that they see what a downturn can do.”
Linsalata Capital Partners vice president and partner Michael Moran said the increased appetite is coming from all matter of sources.“
After a long time in a very quiet market, we're starting to see some re-emergence of deal activity over the past month,” Mr. Moran said.
A 'rising tide'
Gordon Kaiser, a partner and former head of the corporate practice group at the law firm Squire, Sanders & Dempsey, said strategic buyers with capital on hand are looking for ways to spend it, and banks are more willing to lend for private equity deals.
Mr. Filippell, at Western Reserve Partners, said private equity firms also are willing to put increasing amounts of equity into deals, fearful that they will not find sufficient opportunities before they need to return capital to investors.
Stan Gorom, business practice chair at law firm Hahn Loeser & Parks, said he continues to see particular interest in distressed companies and has seen asset purchase agreements and letters of intent on the rise. However, he said people remain conservative, even as they seek to deploy unused capital.
“It's nascent, it's just beginning,” Mr. Gorom said. “I've seen a few deals, which gives hope.”
Likewise, Megan Mehalko, chair of the corporate and securities practice group at Benesch Friedlander Coplan & Aronoff, said she is “reasonably optimistic” that M&A activity will continue to rise as companies that have a “strong desire to invest and grow and capitalize” take advantage of the improved economic climate.
For most of 2009, Ms. Mehalko said, she was struggling on a monthly basis. From the start of 2010, though, she could see the pipeline of deals going as far as three quarters in the future.
James Dougherty, mergers and acquisitions partner at Jones Day, said increased confidence is a large reason for the change. When a global financial meltdown was a “legitimate concern,” he said, companies did not have a rosy picture of the future and were loath to make acquisitions.“
Although now, it's not 2006, 2007, deals make sense and financing is available,” he said. “There's a marked improvement from last year at this time.”
Mark Filippell, managing director of investment banking firm Western Reserve Partners, likened the increased activity he sees in the mergers and acquisitions market to the baby boom following World War II.
“The numbers are going to pop. M&A deals are happening,” he said. “It's like in 1946, when the soldiers are back for six months and someone says, ‘No babies are being born.' Well, look down the street; you see a lot of pregnant women.”
Mr. Filippell and others who spend their days looking at deals say that as credit has loosened and bad quarters start to roll off companies' books, the appetite of both buyers and sellers in M&A deals has risen dramatically.
While that pickup still doesn't translate into a pre-recession flow of transactions, it does mean buyers and sellers are pushing forward on deals they could not or would not entertain for the past year and a half or more.
Mr. Filippell said he has seen a number of letters of intent and that Western Reserve Partners “is running flat out” working on transactions, as are a number of M&A attorneys to whom he has spoken.
Stewart Kohl, co-CEO of private equity firm The Riverside Co., said the momentum really picked up in March, after incrementally improving for most of the second half of 2009. Both the number of companies for sale and the quality of those companies have been on the rise.
“What's beginning as a spring thaw is becoming a summer and fall avalanche,” said Mr. Kohl, whose own firm has made seven acquisition so far in 2010. “We're going to see more and more.”
Investment firm William Blair and Co., in Chicago, also noted that activity seemed to increase in March. In an April commentary, the firm said there had been 982 transactions announced in the United States for that month, a nearly 32% increase from March 2009.
Indeed, March marked the fifth consecutive month that the number of transactions increased as compared to the prior year. And the disclosed dollar volume of the announced transactions in March, $140.1 billion, was 72% higher than it was a year ago, according to William Blair.
The reasons for the increase, Mr. Kohl said, include the need for other private equity firms to make exits so they can reinvest their capital; small business owners who are getting older, sicker or simply want to retire to spend more time on the beach; a pending increase in capital gains tax rates that would reward owners who sold before year's end; and increased bank lending that make deals easier to complete.
Tire kickers abound
The deal flow is still “choppy,” said Doug Neary, corporate group chair at Cleveland law firm Calfee, Halter & Griswold, but it's increasing at a steady pace.
Mr. Neary, who also co-chairs Calfee's M&A practice, said earnings are getting better, increasing companies' worth, and proving to potential acquirers that the businesses are strong enough to ride out a bad economy.
The general consensus, he said, is that there will continue to be an increase in activity throughout 2010; Mr. Neary said he expects a “frenzy” by the end of the year.
Nonetheless, he said buyers remain cautious and are “kicking the tires more diligently, now that they see what a downturn can do.”
Linsalata Capital Partners vice president and partner Michael Moran said the increased appetite is coming from all matter of sources.“
After a long time in a very quiet market, we're starting to see some re-emergence of deal activity over the past month,” Mr. Moran said.
A 'rising tide'
Gordon Kaiser, a partner and former head of the corporate practice group at the law firm Squire, Sanders & Dempsey, said strategic buyers with capital on hand are looking for ways to spend it, and banks are more willing to lend for private equity deals.
Mr. Filippell, at Western Reserve Partners, said private equity firms also are willing to put increasing amounts of equity into deals, fearful that they will not find sufficient opportunities before they need to return capital to investors.
Stan Gorom, business practice chair at law firm Hahn Loeser & Parks, said he continues to see particular interest in distressed companies and has seen asset purchase agreements and letters of intent on the rise. However, he said people remain conservative, even as they seek to deploy unused capital.
“It's nascent, it's just beginning,” Mr. Gorom said. “I've seen a few deals, which gives hope.”
Likewise, Megan Mehalko, chair of the corporate and securities practice group at Benesch Friedlander Coplan & Aronoff, said she is “reasonably optimistic” that M&A activity will continue to rise as companies that have a “strong desire to invest and grow and capitalize” take advantage of the improved economic climate.
For most of 2009, Ms. Mehalko said, she was struggling on a monthly basis. From the start of 2010, though, she could see the pipeline of deals going as far as three quarters in the future.
James Dougherty, mergers and acquisitions partner at Jones Day, said increased confidence is a large reason for the change. When a global financial meltdown was a “legitimate concern,” he said, companies did not have a rosy picture of the future and were loath to make acquisitions.“
Although now, it's not 2006, 2007, deals make sense and financing is available,” he said. “There's a marked improvement from last year at this time.”
Thursday, May 06, 2010
Ohio Dealmakers Optimistic About M&A
May 6, 2010 6:40 a.m.CLEVELAND -- After 18 months of pervasive gloom, dealmakers from Ohio are increasingly more positive about the mergers and acquisitions environment, according to the latest DealMakers Survey by the Association for Corporate Growth and Thomson Reuters. While the last three surveys were consistently dreary, 94% of Ohio dealmakers now expect an increase in mergers and acquisition activity in the next six months.“We’ve seen an increase in the quality of the deals in 2010 as compared to last year,” said Thomas Littman, president and senior managing partner of middle-market private equity firm Kirtland Capital Partners. “While we’re not back to the crazy days of 2007 to 2008, we are bullish on the outlook for the M&A market for the rest of 2010.”The survey polled investment bankers, private equity professionals, corporate development officers, lawyers, accountants and business consultants. Respondents expect the most merger activity in the manufacturing and distribution sector (cited by 33%), followed by health care/life sciences (18%), technology (15%) and consumer products and services (9%).“Many factors are contributing to the increased M&A activity, including the greater willingness of business owners to consider a sale because their businesses have stabilized, significant improvement in the debt markets over the last six months and the potential change in the capital gains tax rate in 2011,” Littman noted.Fully 82% of respondents identified the current environment as a buyer’s market, and 94% expect strategic investments to accelerate in 2010. The greatest drag on M&A activity today is the number of sellers unwilling to sell at multiples offered, according to 46% of dealmakers. This is followed by the credit crunch (20%).According to Thomson Reuters, the volume of all worldwide mergers and acquisitions totaled $573.3 billion during the first quarter of 2010, a 21% increase over the first quarter of 2009.
Published by The Business Journal, Youngstown, Ohio
Published by The Business Journal, Youngstown, Ohio
Monday, April 26, 2010
Spitzer & Black: Questions from the Goldman Scandal
By Eliot Spitzer and Bill Black, cross posted from New Deal 2.0:
Spitzer and Black argue that the Goldman revelations underscore the need for serious financial reform.
For those who have spent years investigating fraud, it was no surprise to hear that Goldman Sachs, the (self-described) jewel of Wall Street, is the latest firm to emerge from the financial crisis with tarnished reputation. According to a lawsuit brought by the Securities and Exchange Commission, Goldman misrepresented to its customers the quality of the toxic assets underlying a complex financial derivative known as a “synthetic collateralized debt obligation (CDO).”
As you may now have heard, the story involves a pair of Paulsons. As CEO of Goldman, Hank Paulson oversaw the buying of large amounts of CDOs backed by largely fraudulent “liar’s loans.” When he became U.S. Treasury Secretary, he went on to launch a successful war against securities and banking regulation. Hank Paulson’s successors at Goldman saw the writing on the wall and began to “short” CDOs. They realized that they had an unusual, brief window of opportunity to unload their losers on their customers. Being the very model of a modern investment banking firm, they thought that blowing up their customers would be fine sport.
John Paulson (unrelated), who controls a large hedge fund, also wanted to short CDOs and he, too, recognized that there was a narrow window for doing so. The reason there was a profit opportunity was that the “market” for toxic mortgages only appeared to be a functioning market. It was, in reality, a massive bubble in which ratings and “market” prices were grotesquely inflated. The inflated prices were continuing only because the huge players knew that the prices and races were fictional and were covering it up through the financial equivalent of “don’t ask; don’t tell.” According to the SEC complaint:
In January 2007, a Paulson employee explained the company’s view, saying that “rating agencies, CDO managers and underwriters have all the incentives to keep the game going, while ‘real money’ investors have neither the analytical tools nor the institutional framework to take action.”
We know from Bankruptcy Examiner Valukas’ report on Lehman that the Federal Reserve knew that the “market” prices were delusional and refused to require entities like Lehman to recognize their losses on “liar’s loans” for fear that it would expose the cover up of the losses. Valukas reports that Geithner explained to him when interviewed (p. 1502) that:
The challenge for the Government, and for troubled firms like Lehman, was to reduce risk exposure, and the act of reducing risk by selling assets could result in “collateral damage” by demonstrating weakness and exposing “air” in the marks.
Goldman and John Paulson worked together. One of the key things to understand about shorting is that it is extremely valuable if other major players short similar targets at the same time. By helping Paulson take advantage of Goldman’s customers (the ones that lacked “the analytical tools” to avoid being hosed), Goldman not only earned a substantial fee, but also aided its overall strategy of shorting the toxic paper.
Goldman created a deal in which John Paulson played a major role in selecting the toxic paper that would underlie the investment. He picked assets “most likely to fail - quickly” and studies show that he was particularly good at picking the losers. At this juncture, there is some dispute as to whether ACA was complicit with John Paulson and Goldman in picking losers (ACA initially invested in the synthetic CDO, but then transferred the risk of loss to German and English taxpayers).
What isn’t in dispute is that Goldman, ACA, and Paulson all failed to disclose to purchasers of the synthetic CDO that it was designed to be most likely to fail. The representation was the opposite: that the assets were picked by an independent entity with their interests at heart (ACA). Goldman claims it’s a victim because while it intended to sell its entire position in the synthetic CDO to its customers, it was unable to sell a chunk. One feels the firm’s pain. Goldman tried to blow up its customers to the tune of over $1 billion, but were unable to sell them the last $90 million in exposure.
The Goldman scandal raises several important questions: Did John Paulson and ACA know that Goldman was making these false disclosures to the CDO purchasers? Did they “aid and abet” what the SEC alleges was Goldman’s fraud? Why have there been no criminal charges? Why did the SEC only name a relatively low-level Goldman officer in its complaint? Where are the prosecutors?
In a December New York Times op ed, we, along with Frank Partnoy, asked for the public disclosure of AIG emails and key documents so that we can investigate the deceptive practices exposed by the Goldman case. Goldman used AIG to provide the CDS on most of these synthetic CDO deals (though not the particular one that is the subject of the SEC complaint), and Hank Paulson used tax payer money to secretly bail out Goldman when AIG’s deceptive practices drove it to failure.
The SEC’s Goldman fraud complaint points to fundamental problem in the financial sector that has been at the root of the financial crisis — one that still exists today. The market is not transparent. It has been fraudulently manipulated to enrich managers. Investors lack clear information to make decisions about what they are buying. A continuing absence of real consumer protections makes people like those trying to obtain mortgages before the crash understand that they were, in many cases, being ripped off. According to internal Goldman Sachs e-mails, the company vice president, 31-year old Fabrice Tourre, did not really understand the complex deals he was making. And yet we note that many of these Goldman-style deals were “insured” by AIG. Without transparency, regulators cannot properly see all these kinds of deals in the aggregate. So they can neither stop the fraud nor prevent catastrophic results.
We applaud the SEC lawsuit, but it will not solve the problem. Unless our financial system is reformed to put adequate protections and checks and balances in place, we can expect this kind of fraud to continue. Financial executives will continue to take risks they do not understand. Those who control the flow of capital will continue to churn out profits with socially disastrous consequences.
Spitzer and Black argue that the Goldman revelations underscore the need for serious financial reform.
For those who have spent years investigating fraud, it was no surprise to hear that Goldman Sachs, the (self-described) jewel of Wall Street, is the latest firm to emerge from the financial crisis with tarnished reputation. According to a lawsuit brought by the Securities and Exchange Commission, Goldman misrepresented to its customers the quality of the toxic assets underlying a complex financial derivative known as a “synthetic collateralized debt obligation (CDO).”
As you may now have heard, the story involves a pair of Paulsons. As CEO of Goldman, Hank Paulson oversaw the buying of large amounts of CDOs backed by largely fraudulent “liar’s loans.” When he became U.S. Treasury Secretary, he went on to launch a successful war against securities and banking regulation. Hank Paulson’s successors at Goldman saw the writing on the wall and began to “short” CDOs. They realized that they had an unusual, brief window of opportunity to unload their losers on their customers. Being the very model of a modern investment banking firm, they thought that blowing up their customers would be fine sport.
John Paulson (unrelated), who controls a large hedge fund, also wanted to short CDOs and he, too, recognized that there was a narrow window for doing so. The reason there was a profit opportunity was that the “market” for toxic mortgages only appeared to be a functioning market. It was, in reality, a massive bubble in which ratings and “market” prices were grotesquely inflated. The inflated prices were continuing only because the huge players knew that the prices and races were fictional and were covering it up through the financial equivalent of “don’t ask; don’t tell.” According to the SEC complaint:
In January 2007, a Paulson employee explained the company’s view, saying that “rating agencies, CDO managers and underwriters have all the incentives to keep the game going, while ‘real money’ investors have neither the analytical tools nor the institutional framework to take action.”
We know from Bankruptcy Examiner Valukas’ report on Lehman that the Federal Reserve knew that the “market” prices were delusional and refused to require entities like Lehman to recognize their losses on “liar’s loans” for fear that it would expose the cover up of the losses. Valukas reports that Geithner explained to him when interviewed (p. 1502) that:
The challenge for the Government, and for troubled firms like Lehman, was to reduce risk exposure, and the act of reducing risk by selling assets could result in “collateral damage” by demonstrating weakness and exposing “air” in the marks.
Goldman and John Paulson worked together. One of the key things to understand about shorting is that it is extremely valuable if other major players short similar targets at the same time. By helping Paulson take advantage of Goldman’s customers (the ones that lacked “the analytical tools” to avoid being hosed), Goldman not only earned a substantial fee, but also aided its overall strategy of shorting the toxic paper.
Goldman created a deal in which John Paulson played a major role in selecting the toxic paper that would underlie the investment. He picked assets “most likely to fail - quickly” and studies show that he was particularly good at picking the losers. At this juncture, there is some dispute as to whether ACA was complicit with John Paulson and Goldman in picking losers (ACA initially invested in the synthetic CDO, but then transferred the risk of loss to German and English taxpayers).
What isn’t in dispute is that Goldman, ACA, and Paulson all failed to disclose to purchasers of the synthetic CDO that it was designed to be most likely to fail. The representation was the opposite: that the assets were picked by an independent entity with their interests at heart (ACA). Goldman claims it’s a victim because while it intended to sell its entire position in the synthetic CDO to its customers, it was unable to sell a chunk. One feels the firm’s pain. Goldman tried to blow up its customers to the tune of over $1 billion, but were unable to sell them the last $90 million in exposure.
The Goldman scandal raises several important questions: Did John Paulson and ACA know that Goldman was making these false disclosures to the CDO purchasers? Did they “aid and abet” what the SEC alleges was Goldman’s fraud? Why have there been no criminal charges? Why did the SEC only name a relatively low-level Goldman officer in its complaint? Where are the prosecutors?
In a December New York Times op ed, we, along with Frank Partnoy, asked for the public disclosure of AIG emails and key documents so that we can investigate the deceptive practices exposed by the Goldman case. Goldman used AIG to provide the CDS on most of these synthetic CDO deals (though not the particular one that is the subject of the SEC complaint), and Hank Paulson used tax payer money to secretly bail out Goldman when AIG’s deceptive practices drove it to failure.
The SEC’s Goldman fraud complaint points to fundamental problem in the financial sector that has been at the root of the financial crisis — one that still exists today. The market is not transparent. It has been fraudulently manipulated to enrich managers. Investors lack clear information to make decisions about what they are buying. A continuing absence of real consumer protections makes people like those trying to obtain mortgages before the crash understand that they were, in many cases, being ripped off. According to internal Goldman Sachs e-mails, the company vice president, 31-year old Fabrice Tourre, did not really understand the complex deals he was making. And yet we note that many of these Goldman-style deals were “insured” by AIG. Without transparency, regulators cannot properly see all these kinds of deals in the aggregate. So they can neither stop the fraud nor prevent catastrophic results.
We applaud the SEC lawsuit, but it will not solve the problem. Unless our financial system is reformed to put adequate protections and checks and balances in place, we can expect this kind of fraud to continue. Financial executives will continue to take risks they do not understand. Those who control the flow of capital will continue to churn out profits with socially disastrous consequences.
Wednesday, April 21, 2010
Justice and F.T.C. Propose New Merger Guidelines
Antitrust enforcers have released proposed new guidelines describing how they approach mergers between rivals, with a range of experts describing the revisions as providing greater clarity and giving officials more discretion, Reuters reported.
The stated goal of the 34-page guidelines — which can be found at www.ftc.gov — is to update the merger guidelines to ensure they reflect the current review process.
The revision was done jointly by the Justice Department and Federal Trade Commission, which divide the work of antitrust enforcement, the news service said.
“Eighteen years have passed since the Horizontal Merger Guidelines were revised. During that time the agencies’ approach has evolved significantly, and the guidelines should reflect that,” said F.T.C. Chairman Jon Leibowitz in a statement.
Go to Article from Reuters »
The stated goal of the 34-page guidelines — which can be found at www.ftc.gov — is to update the merger guidelines to ensure they reflect the current review process.
The revision was done jointly by the Justice Department and Federal Trade Commission, which divide the work of antitrust enforcement, the news service said.
“Eighteen years have passed since the Horizontal Merger Guidelines were revised. During that time the agencies’ approach has evolved significantly, and the guidelines should reflect that,” said F.T.C. Chairman Jon Leibowitz in a statement.
Go to Article from Reuters »
Friday, April 16, 2010
M & A: Live from Tulane: Deal-Making Returns
NYT DealBook, Friday, April 16, 2010:
Hello from New Orleans, where DealBook has been covering Tulane University's Corporate Law Institute, the annual gathering of top deal-making lawyers. The mood here is markedly more optimistic than last year, as professionals predict deal-making is ready to grow. Go to DealBook's Coverage of Tulane University's 2010 Corporate Law Institute>>
Kicking off the conference, JPMorgan Chase's Douglas Braunstein says that the signs are present for renewed deal-making in 2010. Go to Item from DealBook» Just because calls have grown louder for the government to increase its regulation of companies doesn't mean that it should, a commissioner at the Securities and Exchange Commission said Thursday. Go to Item from DealBook»
A panel on public company mergers at the Corporate Law Institute mixed the serious with the sarcastic, perhaps an inevitable mix when Delaware Chancery Court Vice Chancellor Leo Strine is on hand. Go to Item from DealBook»
Hello from New Orleans, where DealBook has been covering Tulane University's Corporate Law Institute, the annual gathering of top deal-making lawyers. The mood here is markedly more optimistic than last year, as professionals predict deal-making is ready to grow. Go to DealBook's Coverage of Tulane University's 2010 Corporate Law Institute>>
Kicking off the conference, JPMorgan Chase's Douglas Braunstein says that the signs are present for renewed deal-making in 2010. Go to Item from DealBook» Just because calls have grown louder for the government to increase its regulation of companies doesn't mean that it should, a commissioner at the Securities and Exchange Commission said Thursday. Go to Item from DealBook»
A panel on public company mergers at the Corporate Law Institute mixed the serious with the sarcastic, perhaps an inevitable mix when Delaware Chancery Court Vice Chancellor Leo Strine is on hand. Go to Item from DealBook»
Thursday, April 15, 2010
Signs of Confidence Growing in M.&A. Market
NYT DealBook, April 14, 2010:
Corporate executives from around the globe feel more confident about making deals, with many of them planning mergers and acquisitions in the near future, according to a new survey of business confidence by Ernst & Young and the Economist Intelligence Unit.
The Capital Confidence Barometer, a survey of more than 800 professionals worldwide, found that 57 percent of businesses say they are likely or highly likely to acquire a rival in the next 12 months, with 47 percent expecting to reach a deal in the next six months. That compares with six months ago when the biannual survey found that just 33 percent were planning acquisitions over the coming 12 months, with 25 percent expecting deals in the coming six months.
The biannual survey complements another look at mergers and acquisitions released on Wednesday by the Brunswick Group, a corporate communications firm. That survey showed top bankers and lawyers were even more optimistic, with two-thirds saying they thought deal-making activity was on the increase.
The Ernst & Young study also found that confidence in credit conditions was improving, as 62 percent of respondents said they could obtain financing for major capital projects and acquisitions in the next 12 months. Up to now, most deals have been cash-based because of the lack of bank financing.
“Improving market conditions have more companies shopping again and those with capital to deploy are ahead of the game,” Richard Jeanneret, vice chairman of transaction advisory services at Ernst & Young, said in a statement. “There’s a greater focus on growth opportunities and M.&A. is one way to achieve that goal.”
The survey, which was conducted in late March, also found that 76 percent of businesses were now focused on growth, compared with 56 percent six months ago. Those executives in the automotive sector were the most confident of growth, with 81 percent of respondents expecting their businesses to expand — a result that makes sense given the pounding that the auto industry took during the financial crisis.
Meanwhile, executives in the energy and pharmaceuticals sectors said that they were very likely to focus on mergers and acquisitions, as well as divestitures. About 69 percent of oil and gas companies said they were planning to sell a piece of their businesses in the next six months.
But while there was a pickup in sentiment concerning deals, the outlook for the broader economy remained somewhat weak. with just 40 percent of respondents expecting the economic downturn to end within 12 months.
There was a wide dispersion of confidence related to the economy depending on where the respondents were based. The most optimistic countries were Australia at 93 percent, India at 91 percent, Brazil at 83 percent and China at 80 percent.
The Western developed markets were among the least confident of the group, with France at 44 percent, the United States at 56 percent and Britain at 57 percent.
– Cyrus Sanati
Corporate executives from around the globe feel more confident about making deals, with many of them planning mergers and acquisitions in the near future, according to a new survey of business confidence by Ernst & Young and the Economist Intelligence Unit.
The Capital Confidence Barometer, a survey of more than 800 professionals worldwide, found that 57 percent of businesses say they are likely or highly likely to acquire a rival in the next 12 months, with 47 percent expecting to reach a deal in the next six months. That compares with six months ago when the biannual survey found that just 33 percent were planning acquisitions over the coming 12 months, with 25 percent expecting deals in the coming six months.
The biannual survey complements another look at mergers and acquisitions released on Wednesday by the Brunswick Group, a corporate communications firm. That survey showed top bankers and lawyers were even more optimistic, with two-thirds saying they thought deal-making activity was on the increase.
The Ernst & Young study also found that confidence in credit conditions was improving, as 62 percent of respondents said they could obtain financing for major capital projects and acquisitions in the next 12 months. Up to now, most deals have been cash-based because of the lack of bank financing.
“Improving market conditions have more companies shopping again and those with capital to deploy are ahead of the game,” Richard Jeanneret, vice chairman of transaction advisory services at Ernst & Young, said in a statement. “There’s a greater focus on growth opportunities and M.&A. is one way to achieve that goal.”
The survey, which was conducted in late March, also found that 76 percent of businesses were now focused on growth, compared with 56 percent six months ago. Those executives in the automotive sector were the most confident of growth, with 81 percent of respondents expecting their businesses to expand — a result that makes sense given the pounding that the auto industry took during the financial crisis.
Meanwhile, executives in the energy and pharmaceuticals sectors said that they were very likely to focus on mergers and acquisitions, as well as divestitures. About 69 percent of oil and gas companies said they were planning to sell a piece of their businesses in the next six months.
But while there was a pickup in sentiment concerning deals, the outlook for the broader economy remained somewhat weak. with just 40 percent of respondents expecting the economic downturn to end within 12 months.
There was a wide dispersion of confidence related to the economy depending on where the respondents were based. The most optimistic countries were Australia at 93 percent, India at 91 percent, Brazil at 83 percent and China at 80 percent.
The Western developed markets were among the least confident of the group, with France at 44 percent, the United States at 56 percent and Britain at 57 percent.
– Cyrus Sanati
Wednesday, April 14, 2010
Deal Outlook Is Rosy Ahead of Tulane M.&A. Conference
NYT DealBook, April 14, 2010:
Deal-makers are feeling good about their business again ahead of Tulane University Law School’s annual Corporate Law Institute in New Orleans, which begins Thursday. (DealBook will be on the ground to give you an inside look.)
More than two-thirds of top bankers and lawyers who orchestrate mergers and acquisitions believe that deal-making activity will rise again, according to a survey released Wednesday by the Brunswick Group, a corporate communications firm.
That’s a big change from last year’s results, in only 29 percent of respondents forecast signs of recovery within 18 months.
“This year’s results reveal a substantial change in sentiment in the M.&A. world and advisors appear to be quite optimistic that the deal activity we’ve seen in the first quarter of the year will continue and potentially accelerate during the remainder of 2010,” Steven Lipin, a Brunswick senior partner, said in a statement. “While it may be premature to sing Bon Temps Rouler, overall the community is feeling much more positive.”
While the economic recovery has certainly helped propel deal-making — as DealBook noted earlier this month, mergers volumes remain up more than 18 percent from last year — deal-makers said that psychological factors will help greatly. About 36 percent of respondents said that the confidence of chief executives and corporate boards will provide the biggest boost to deal-making, more than healthy credit markets and booming stock prices.
The vast majority of respondents said that domestic mergers will dominate the landscape, and deals involving a mix of cash and stock will be the norm.Brunswick Group’s M.&A. Survey 2010
Deal-makers are feeling good about their business again ahead of Tulane University Law School’s annual Corporate Law Institute in New Orleans, which begins Thursday. (DealBook will be on the ground to give you an inside look.)
More than two-thirds of top bankers and lawyers who orchestrate mergers and acquisitions believe that deal-making activity will rise again, according to a survey released Wednesday by the Brunswick Group, a corporate communications firm.
That’s a big change from last year’s results, in only 29 percent of respondents forecast signs of recovery within 18 months.
“This year’s results reveal a substantial change in sentiment in the M.&A. world and advisors appear to be quite optimistic that the deal activity we’ve seen in the first quarter of the year will continue and potentially accelerate during the remainder of 2010,” Steven Lipin, a Brunswick senior partner, said in a statement. “While it may be premature to sing Bon Temps Rouler, overall the community is feeling much more positive.”
While the economic recovery has certainly helped propel deal-making — as DealBook noted earlier this month, mergers volumes remain up more than 18 percent from last year — deal-makers said that psychological factors will help greatly. About 36 percent of respondents said that the confidence of chief executives and corporate boards will provide the biggest boost to deal-making, more than healthy credit markets and booming stock prices.
The vast majority of respondents said that domestic mergers will dominate the landscape, and deals involving a mix of cash and stock will be the norm.Brunswick Group’s M.&A. Survey 2010
Thursday, April 08, 2010
Financial Deal-Making May Rise in 2010, PwC Says
NYT DealBook, April 8, 2010.
The first instances of consolidation among financial services firms began in earnest during the height of the financial crisis, when Bank of America purchased Merrill Lynch and Barclays Capital acquired the bulk of the failed Lehman Brothers.
More than two years later, financial services firms are still expected to partake in mergers and acquisitions, according to a report released Thursday by PricewaterhouseCoopers.
Bank auctions by the Federal Deposit Insurance Corporation, consolidation among asset management firms and possibly some deals among insurers are all expected to take place over the rest of 2010, the accounting firm said.
Already, two of the biggest deals of the year were in the financial space: the sales of two international units of the American International Group, as the insurer trudges toward recovery after its near-collapse during the financial crisis.
“We believe the current market presents a significant number of potential opportunities in the banking, asset management and insurance sectors for investors that have the liquidity and capital strength to be acquisitive and the infrastructure and capabilities to realize potential synergies,” Gary Tillett, PricewaterhouseCoopers’ financial services leader, transaction services, said in a statement.
The report cites several factors for continued deal-making among financial players. While the economy has recovered, some firms — like banks and property and casualty insurance providers — may continue to struggle with returning to big profits. And asset managers may still face pricing pressures.
Go to PricewaterhouseCoopers Press Release »
Go to PricewaterhouseCoopers Report (PDF) »
The first instances of consolidation among financial services firms began in earnest during the height of the financial crisis, when Bank of America purchased Merrill Lynch and Barclays Capital acquired the bulk of the failed Lehman Brothers.
More than two years later, financial services firms are still expected to partake in mergers and acquisitions, according to a report released Thursday by PricewaterhouseCoopers.
Bank auctions by the Federal Deposit Insurance Corporation, consolidation among asset management firms and possibly some deals among insurers are all expected to take place over the rest of 2010, the accounting firm said.
Already, two of the biggest deals of the year were in the financial space: the sales of two international units of the American International Group, as the insurer trudges toward recovery after its near-collapse during the financial crisis.
“We believe the current market presents a significant number of potential opportunities in the banking, asset management and insurance sectors for investors that have the liquidity and capital strength to be acquisitive and the infrastructure and capabilities to realize potential synergies,” Gary Tillett, PricewaterhouseCoopers’ financial services leader, transaction services, said in a statement.
The report cites several factors for continued deal-making among financial players. While the economy has recovered, some firms — like banks and property and casualty insurance providers — may continue to struggle with returning to big profits. And asset managers may still face pricing pressures.
Go to PricewaterhouseCoopers Press Release »
Go to PricewaterhouseCoopers Report (PDF) »
Monday, April 05, 2010
Tech M.&A. Shows More Signs of Rebounding
NYT DealBook, April 5, 2010:
The number of technology mergers and acquisitions announced in the first quarter of the year rose to its highest level since the financial crisis first gripped the market, according to the 451 Group, a technology investment research firm.. But the aggregate value of the transactions fell from the previous quarter as there were only a handful of big-ticket deals announced.
Nevertheless, many technology companies are still sitting on the sidelines with large cash reserves, so deal activity could increase as the economy improves.
Deal makers were busy in Silicon Valley last quarter, announcing 841 deals, the highest number since the second quarter of 2007, the 451 Group reports. The makeup of deals varied from a bevy of small bolt on acquisitions to some larger deals with big-name players, including CA, Google, I.B.M. and Oracle. They all announced at least three acquisitions in the just-completed quarter, including, I.B.M.’s acquisition of Initiate Systems and CA’s acquisition of Nimsoft.
But while the quarter saw 12 deals that exceeded $1 billion, the majority of deals were smaller eight- or seven-figure deals. In fact, a third of the deals volume announced originated with just one deal, Bharti Airtel $9 billion acquisition of the Zain Group’s mobile phone businesses in Africa, which skews more into the telecommunications sector rather than the pure-play technology space.
Meanwhile, smaller technology companies continued to rack up deals. The quarter saw purchases from SGI, Unica and Nuance Communications. These three companies have a combined market capitalization of $5.2 billion and more than $600 million of cash on hand, so they still have plenty of money to make further deals in the coming quarters.
In addition to acquisitions, there were also a number of money-losing divestitures from companies attempted to raise cash, like the jettisoning of HotJobs and Zimbra by Yahoo. The 451 Groups says those deals probably returned only about 50 cents on the dollar for Yahoo.
One reason for the weakness came from the lack of private equity money invested in technology deals. Private equity firms invested just $6.6 billion in technology in the first quarter, 451 Group tabulated, which was down about a third from the $9.9 billion invested by those firms in the fourth quarter of 2009.
Despite the drop in private equity interest, there were some signs that private equity firms were willing to take more risks in technology as a consortium of companies including Berkshire Partners, Bain Capital and Advent International teamed up last quarter to put forward a combined $1.1 billion for the Irish electronic education company SkillSoft. It was one of the first private equity deals that broke the $1 billion mark in nearly two and a half years, the 451 Group said.
– Cyrus Sanati
Go to Report from the 451 Group »
The number of technology mergers and acquisitions announced in the first quarter of the year rose to its highest level since the financial crisis first gripped the market, according to the 451 Group, a technology investment research firm.. But the aggregate value of the transactions fell from the previous quarter as there were only a handful of big-ticket deals announced.
Nevertheless, many technology companies are still sitting on the sidelines with large cash reserves, so deal activity could increase as the economy improves.
Deal makers were busy in Silicon Valley last quarter, announcing 841 deals, the highest number since the second quarter of 2007, the 451 Group reports. The makeup of deals varied from a bevy of small bolt on acquisitions to some larger deals with big-name players, including CA, Google, I.B.M. and Oracle. They all announced at least three acquisitions in the just-completed quarter, including, I.B.M.’s acquisition of Initiate Systems and CA’s acquisition of Nimsoft.
But while the quarter saw 12 deals that exceeded $1 billion, the majority of deals were smaller eight- or seven-figure deals. In fact, a third of the deals volume announced originated with just one deal, Bharti Airtel $9 billion acquisition of the Zain Group’s mobile phone businesses in Africa, which skews more into the telecommunications sector rather than the pure-play technology space.
Meanwhile, smaller technology companies continued to rack up deals. The quarter saw purchases from SGI, Unica and Nuance Communications. These three companies have a combined market capitalization of $5.2 billion and more than $600 million of cash on hand, so they still have plenty of money to make further deals in the coming quarters.
In addition to acquisitions, there were also a number of money-losing divestitures from companies attempted to raise cash, like the jettisoning of HotJobs and Zimbra by Yahoo. The 451 Groups says those deals probably returned only about 50 cents on the dollar for Yahoo.
One reason for the weakness came from the lack of private equity money invested in technology deals. Private equity firms invested just $6.6 billion in technology in the first quarter, 451 Group tabulated, which was down about a third from the $9.9 billion invested by those firms in the fourth quarter of 2009.
Despite the drop in private equity interest, there were some signs that private equity firms were willing to take more risks in technology as a consortium of companies including Berkshire Partners, Bain Capital and Advent International teamed up last quarter to put forward a combined $1.1 billion for the Irish electronic education company SkillSoft. It was one of the first private equity deals that broke the $1 billion mark in nearly two and a half years, the 451 Group said.
– Cyrus Sanati
Go to Report from the 451 Group »
Thursday, April 01, 2010
The Pace of Deal-Making Picks Up
By MICHAEL J. de la MERCED, NYT DealBook blog, April 1, 2010:
CORPORATE buyers are intensifying their hunt for deals — and they’re becoming a bit bolder.
More than two years past the start of the financial crisis, deal-making is continuing an ascent as companies seek to bolster their growth through mergers and acquisitions. And as their collective appetite grows, so too does their willingness to consider more aggressive international transactions or unsolicited bids.
The last few months have brought a welter of multibillion-dollar deals, like Comcast’s purchase of a majority stake in NBC Universal, Kraft’s successful $19 billion takeover of Cadbury of Britain and the American International Group’s $51.4 billion sale of two major units. And a spate of unsolicited hostile offers has emerged, notably the Simon Property Group’s $10 billion bid for General Growth Properties, which had filed for bankruptcy.
“The next two quarters will probably be defined as a very aggressive period of speed-dating, where companies will try out different combinations to see if they make strategic sense and are actionable,” said Paul G. Parker, head of global mergers and acquisitions for Barclays Capital.
Worldwide deal volumes swelled to about $564 billion for the three months ended March 31, according to data from Thomson Reuters, 18.4 percent higher than the same time last year. That is a little over half the deal volume of the first quarter of 2007 (which was nearly the peak of mergers activity), but deal-makers say they do not expect to reach those levels for some time.
“The economy’s far from ideal, but companies now have more confidence than they have had in the last 18 months,” said Victor I. Lewkow, a partner at the law firm Cleary Gottlieb Steen & Hamilton.
The conditions that foster successful deal-making are continuing to improve. The stock markets have largely stabilized, with the Standard & Poor’s 500-stock index rising almost 5 percent for the quarter, providing greater clarity into how much companies are worth and helping instill confidence in management teams about potential deals they may be considering.
Just as important, robust stock and credit markets have continued to make financing available for buyers contemplating a takeover. Interest rates remain low, and many strategic companies are drawing upon hoards of cash they stockpiled over the past year.
“The debt markets are wide open,” said Mark Shafir, Citigroup’s global head of mergers and acquisitions. “There’s a lot of capacity in the marketplace.”
Whereas mergers activity last year was dominated primarily by health care and financial services companies, deal-makers say now they are spending time on a broad range of industries.
“It’s across the board,” said Eduardo G. Mestre, vice chairman of Evercore Partners. “I have a very hard time saying that one sector is more active than another sector.”
The economic recovery has also helped alter the dynamics of buyers and sellers. The average worldwide deal premium has fallen nearly 5 percentage points, to 27.5 percent, for the first quarter, according to Thomson Reuters, although it rose 25 percent for transactions in the United States.
While buyers have gained more confidence in pursuing their targets, companies eyed as acquisitions have gotten a better sense of how much they are worth — and more are deciding that the best way to grow is to sell themselves.
“Many companies have moved toward new 52-week highs,” said Chris Ventresca, a co-head of North America mergers and acquisitions at JPMorgan Chase. “They still have uncertainty with regard to their business outlook and don’t see a catalyst for significant stock price appreciation. That provides some basis for sellers to think about traditional premiums over their current stock performance.”
Still, other potential acquisitions say that they are better equipped to grow alone, leaving insistent suitors to ponder whether to try a hostile takeover. Beyond Simon, Air Products and Chemicals, Astellas Pharma, Carl C. Icahn and Elliott Management are among those that have chosen to make unfriendly bids.
The improvement in the debt markets has also helped the private equity industry — largely relegated to the margins in 2009 — assert itself as an active presence once again. Leveraged buyout firms struck about $31.7 billion worth of deals during the first quarter of 2010, amounting to about 5.6 percent of all mergers activity worldwide.
Private equity firms like the Blackstone Group and Kohlberg Kravis Roberts have spoken of their billions of dollars in “dry powder,” or committed investor capital, for some time. Now, with banks proving willing to lend and investors comfortable with riskier bond and loan offerings, such firms are expected to push for bigger deals again, though not as large as the immense leveraged buyouts of three years ago.
Some are also finding buyers for some of their portfolio companies, like Apax Partners’ $3 billion sale of Tommy Hilfiger to Phillips-Van Heusen and Oak Hill Capital Partners’ $1.1 billion sale of Duane Reade to Walgreen. These sales help the buyout firms generate profit and clear room for future acquisitions.
“Private equity firms spent most of last year helping their portfolio companies,” said Randi C. Lesnick, a partner at the law firm Jones Day. “What we’ve been seeing and hearing is an uptick in their interest in new deals.”
Deals have also taken on a more international character: Cross-border transactions added up to about 36.6 percent of all mergers for the first quarter, nearly doubling last year’s number. Deal-makers point to a wide array of mergers, like the Kraft-Cadbury deal and the takeover of A.I.G.’s Asian life insurance arm by Prudential of Britain.
Emerging markets like China and Brazil have proved a font of deal activity: they accounted for $181.7 billion of deals this quarter, according to Thomson Reuters, or 32.2 percent of worldwide volume.
Their expanding presence in mergers and acquisitions has manifested itself both directly, as in Geely of China’s agreement to pay $1.8 billion for Volvo, and indirectly, as in Prudential’s effort to expand its Asian presence through its A.I.G. deal and Kraft’s desire for Cadbury’s footprint in India, Russia and other countries. (A few deals, including Sichuan Tengzhong Heavy Industrial Machines’ $150 million offer for Hummer, fell apart, reportedly because of regulatory troubles.)
Deal-makers say that as China and other developing countries continue to seek natural resources and to put their swelling coffers to good use, they will be seeking even bigger pieces of the mergers pie. “They are emerged markets,” said Antonio Weiss, Lazard’s global head of investment banking. “It’s become old-fashioned to think of these regions as emerging.”
Go to DealBook’s Spring 2010 Special Section »
CORPORATE buyers are intensifying their hunt for deals — and they’re becoming a bit bolder.
More than two years past the start of the financial crisis, deal-making is continuing an ascent as companies seek to bolster their growth through mergers and acquisitions. And as their collective appetite grows, so too does their willingness to consider more aggressive international transactions or unsolicited bids.
The last few months have brought a welter of multibillion-dollar deals, like Comcast’s purchase of a majority stake in NBC Universal, Kraft’s successful $19 billion takeover of Cadbury of Britain and the American International Group’s $51.4 billion sale of two major units. And a spate of unsolicited hostile offers has emerged, notably the Simon Property Group’s $10 billion bid for General Growth Properties, which had filed for bankruptcy.
“The next two quarters will probably be defined as a very aggressive period of speed-dating, where companies will try out different combinations to see if they make strategic sense and are actionable,” said Paul G. Parker, head of global mergers and acquisitions for Barclays Capital.
Worldwide deal volumes swelled to about $564 billion for the three months ended March 31, according to data from Thomson Reuters, 18.4 percent higher than the same time last year. That is a little over half the deal volume of the first quarter of 2007 (which was nearly the peak of mergers activity), but deal-makers say they do not expect to reach those levels for some time.
“The economy’s far from ideal, but companies now have more confidence than they have had in the last 18 months,” said Victor I. Lewkow, a partner at the law firm Cleary Gottlieb Steen & Hamilton.
The conditions that foster successful deal-making are continuing to improve. The stock markets have largely stabilized, with the Standard & Poor’s 500-stock index rising almost 5 percent for the quarter, providing greater clarity into how much companies are worth and helping instill confidence in management teams about potential deals they may be considering.
Just as important, robust stock and credit markets have continued to make financing available for buyers contemplating a takeover. Interest rates remain low, and many strategic companies are drawing upon hoards of cash they stockpiled over the past year.
“The debt markets are wide open,” said Mark Shafir, Citigroup’s global head of mergers and acquisitions. “There’s a lot of capacity in the marketplace.”
Whereas mergers activity last year was dominated primarily by health care and financial services companies, deal-makers say now they are spending time on a broad range of industries.
“It’s across the board,” said Eduardo G. Mestre, vice chairman of Evercore Partners. “I have a very hard time saying that one sector is more active than another sector.”
The economic recovery has also helped alter the dynamics of buyers and sellers. The average worldwide deal premium has fallen nearly 5 percentage points, to 27.5 percent, for the first quarter, according to Thomson Reuters, although it rose 25 percent for transactions in the United States.
While buyers have gained more confidence in pursuing their targets, companies eyed as acquisitions have gotten a better sense of how much they are worth — and more are deciding that the best way to grow is to sell themselves.
“Many companies have moved toward new 52-week highs,” said Chris Ventresca, a co-head of North America mergers and acquisitions at JPMorgan Chase. “They still have uncertainty with regard to their business outlook and don’t see a catalyst for significant stock price appreciation. That provides some basis for sellers to think about traditional premiums over their current stock performance.”
Still, other potential acquisitions say that they are better equipped to grow alone, leaving insistent suitors to ponder whether to try a hostile takeover. Beyond Simon, Air Products and Chemicals, Astellas Pharma, Carl C. Icahn and Elliott Management are among those that have chosen to make unfriendly bids.
The improvement in the debt markets has also helped the private equity industry — largely relegated to the margins in 2009 — assert itself as an active presence once again. Leveraged buyout firms struck about $31.7 billion worth of deals during the first quarter of 2010, amounting to about 5.6 percent of all mergers activity worldwide.
Private equity firms like the Blackstone Group and Kohlberg Kravis Roberts have spoken of their billions of dollars in “dry powder,” or committed investor capital, for some time. Now, with banks proving willing to lend and investors comfortable with riskier bond and loan offerings, such firms are expected to push for bigger deals again, though not as large as the immense leveraged buyouts of three years ago.
Some are also finding buyers for some of their portfolio companies, like Apax Partners’ $3 billion sale of Tommy Hilfiger to Phillips-Van Heusen and Oak Hill Capital Partners’ $1.1 billion sale of Duane Reade to Walgreen. These sales help the buyout firms generate profit and clear room for future acquisitions.
“Private equity firms spent most of last year helping their portfolio companies,” said Randi C. Lesnick, a partner at the law firm Jones Day. “What we’ve been seeing and hearing is an uptick in their interest in new deals.”
Deals have also taken on a more international character: Cross-border transactions added up to about 36.6 percent of all mergers for the first quarter, nearly doubling last year’s number. Deal-makers point to a wide array of mergers, like the Kraft-Cadbury deal and the takeover of A.I.G.’s Asian life insurance arm by Prudential of Britain.
Emerging markets like China and Brazil have proved a font of deal activity: they accounted for $181.7 billion of deals this quarter, according to Thomson Reuters, or 32.2 percent of worldwide volume.
Their expanding presence in mergers and acquisitions has manifested itself both directly, as in Geely of China’s agreement to pay $1.8 billion for Volvo, and indirectly, as in Prudential’s effort to expand its Asian presence through its A.I.G. deal and Kraft’s desire for Cadbury’s footprint in India, Russia and other countries. (A few deals, including Sichuan Tengzhong Heavy Industrial Machines’ $150 million offer for Hummer, fell apart, reportedly because of regulatory troubles.)
Deal-makers say that as China and other developing countries continue to seek natural resources and to put their swelling coffers to good use, they will be seeking even bigger pieces of the mergers pie. “They are emerged markets,” said Antonio Weiss, Lazard’s global head of investment banking. “It’s become old-fashioned to think of these regions as emerging.”
Go to DealBook’s Spring 2010 Special Section »
Monday, March 01, 2010
Four Thoughts About the Return of Merger Monday
From WSJ DealJournal, March 1, 2010:
By Michael Corkery
Merger Monday is back, at least for a week. There were six big deals, totaling $49.2 billion, unveiled this morning, from hostile pharmaceutical bids to the $35.5 billion sale of American International Group’s Asian life insurance unit.
So, what does today’s flood of deals say about the economy, the state of M&A and future deal making? Here are four takeaways:
Good things come to sellers who wait. When the stock market swooned last spring, the government decided to hold off on AIG’s asset sales in hopes of avoiding a fire sale. In the case of selling its Asian life insurance business, that strategy appears to have paid off. Assuming the deal closes, the $35.5 billion that Prudential is paying for the AIG business unit is nearly half as much as other suitors were offering for the business last spring, according to people familiar with the matter. Likewise, in another deal announced this morning, Millipore’s $7.2 billion acquisition by Germany’s Merck, the per-share price of $107 is nearly double the Massachusetts biotechnology-supply company’s 52-week low of about $55 last March.
USA, USA, USA – Ok, so maybe the U.S. has only the No. 2 hockey team in the world. Still, some large overseas companies are making big bets on U.S. companies. Germany’s Merck is spending $7.2 billion to acquire Millipore, while Japan’s Astellas Pharma has launched a hostile $3.5 billion bid for OSI Pharmaceuticals, of Melville, N.Y. Both deals involve large premiums to where the stocks were trading before the deals were announced–50% for Millipore and 40% for OSI. The high prices also speak to confidence in U.S. drug and bio-tech manufacturing and its American customer base.
Playing it safe: Those deal watchers longing for the blockbuster deals that were common earlier in the decade will be sorely disappointed by the deals of late. Recent deals are driven by strategy, like Coke’s purchase last week of its biggest bottler, Coca-Cola Enterprises, or by necessity, as in AIG’s sale of its life insurance unit to raise cash to pay back the U.S. government. Gone for now it seems are “transformative” mergers like AOL-Time Warner. Today’s deals also are focused on fulfilling term goals. For example, Astellas and Merck are being driven by an urgent need to replenish their pharmaceutical pipelines.
Pocket Change: With the exception of the AIA sale, today’s deals are each valued at less than $10 billion. So while there is a steady stream of deals, they aren’t carrying large price tags. With the economy still on shaky ground, few companies are taking risks and throwing expensive “Hail Mary” passes.
By Michael Corkery
Merger Monday is back, at least for a week. There were six big deals, totaling $49.2 billion, unveiled this morning, from hostile pharmaceutical bids to the $35.5 billion sale of American International Group’s Asian life insurance unit.
So, what does today’s flood of deals say about the economy, the state of M&A and future deal making? Here are four takeaways:
Good things come to sellers who wait. When the stock market swooned last spring, the government decided to hold off on AIG’s asset sales in hopes of avoiding a fire sale. In the case of selling its Asian life insurance business, that strategy appears to have paid off. Assuming the deal closes, the $35.5 billion that Prudential is paying for the AIG business unit is nearly half as much as other suitors were offering for the business last spring, according to people familiar with the matter. Likewise, in another deal announced this morning, Millipore’s $7.2 billion acquisition by Germany’s Merck, the per-share price of $107 is nearly double the Massachusetts biotechnology-supply company’s 52-week low of about $55 last March.
USA, USA, USA – Ok, so maybe the U.S. has only the No. 2 hockey team in the world. Still, some large overseas companies are making big bets on U.S. companies. Germany’s Merck is spending $7.2 billion to acquire Millipore, while Japan’s Astellas Pharma has launched a hostile $3.5 billion bid for OSI Pharmaceuticals, of Melville, N.Y. Both deals involve large premiums to where the stocks were trading before the deals were announced–50% for Millipore and 40% for OSI. The high prices also speak to confidence in U.S. drug and bio-tech manufacturing and its American customer base.
Playing it safe: Those deal watchers longing for the blockbuster deals that were common earlier in the decade will be sorely disappointed by the deals of late. Recent deals are driven by strategy, like Coke’s purchase last week of its biggest bottler, Coca-Cola Enterprises, or by necessity, as in AIG’s sale of its life insurance unit to raise cash to pay back the U.S. government. Gone for now it seems are “transformative” mergers like AOL-Time Warner. Today’s deals also are focused on fulfilling term goals. For example, Astellas and Merck are being driven by an urgent need to replenish their pharmaceutical pipelines.
Pocket Change: With the exception of the AIA sale, today’s deals are each valued at less than $10 billion. So while there is a steady stream of deals, they aren’t carrying large price tags. With the economy still on shaky ground, few companies are taking risks and throwing expensive “Hail Mary” passes.
Wednesday, February 10, 2010
Corporate America Is More Pessimistic Than You Know
from Deal Journal - WSJ.com by Michael Corkery
Looking for an explanation for the deep freeze in merger & acquisition activity and the jittery stock market? Just ask the boards overseeing U.S. companies.
A whopping 66% of 1,200 corporate board members surveyed recently said U.S. companies wouldn’t return to “business as usual” until at least 2013, and will operate till then in an environment of sluggish sales and growth. Roughly 45% said the economy would n’t return to pre-crisis levels in terms of investment, employment and productivity before 2013, according to the survey, conducted by KPMG LLP, while 22% said it would come beyond 2014.
“Not withstanding what economists are saying about the recovery, we are hearing from board members that they just don’t see it,’’ says Mary Pat McCarthy, a KPMG vice chairwoman who oversaw the survey of directors at publicly traded companies of varying sizes across the U.S.
McCarthy spoke to Deal Journal this morning from Miami where KPMG is hosting a conference of primarily audit committee members of corporate boards. “We are hearing a steady drumbeat down here that a recovery is a way’s off,” she said.
Another concern among board members: That the cost cutting and layoffs that have helped boost corporate profits is going to hurt the companies in the long term. The survey found that 67% of the respondents said were most concerned that cost cutting would drain the company’s employee talent.
Other concerns: 36% said they worried that the cost cutting would weaken internal controls, 25% said it could raise the risk of fraud and 22% said they thought the integrity of financial reporting could suffer in the hands of leaner staffs.
Bankers, perpetual optimists by nature, have been saying recently that companies seem willing to contemplate deals and they expect M&A to bounce back this year. In light of the bleak portrait containted in the KPMG survey, the question is, just who are these bankers talking to?
Looking for an explanation for the deep freeze in merger & acquisition activity and the jittery stock market? Just ask the boards overseeing U.S. companies.
A whopping 66% of 1,200 corporate board members surveyed recently said U.S. companies wouldn’t return to “business as usual” until at least 2013, and will operate till then in an environment of sluggish sales and growth. Roughly 45% said the economy would n’t return to pre-crisis levels in terms of investment, employment and productivity before 2013, according to the survey, conducted by KPMG LLP, while 22% said it would come beyond 2014.
“Not withstanding what economists are saying about the recovery, we are hearing from board members that they just don’t see it,’’ says Mary Pat McCarthy, a KPMG vice chairwoman who oversaw the survey of directors at publicly traded companies of varying sizes across the U.S.
McCarthy spoke to Deal Journal this morning from Miami where KPMG is hosting a conference of primarily audit committee members of corporate boards. “We are hearing a steady drumbeat down here that a recovery is a way’s off,” she said.
Another concern among board members: That the cost cutting and layoffs that have helped boost corporate profits is going to hurt the companies in the long term. The survey found that 67% of the respondents said were most concerned that cost cutting would drain the company’s employee talent.
Other concerns: 36% said they worried that the cost cutting would weaken internal controls, 25% said it could raise the risk of fraud and 22% said they thought the integrity of financial reporting could suffer in the hands of leaner staffs.
Bankers, perpetual optimists by nature, have been saying recently that companies seem willing to contemplate deals and they expect M&A to bounce back this year. In light of the bleak portrait containted in the KPMG survey, the question is, just who are these bankers talking to?
Friday, January 29, 2010
I.P.O. Market Begins to Regain Its Luster
NYT DealBook, January 29, 2010, 4:10 pm — Updated: 4:10 pm -->
The I.P.O. pipeline in the United States is filling up as companies once afraid of braving the capital markets are now lining up to for initial public offerings. A fair number of these companies, especially in the financial industry, are looking to spin off businesses at lucrative prices.
The drought in I.P.O.’s reached its peak earlier last year during the financial crisis, with weeks and months going by without one offering hitting the market. Companies feared that the volatility and uncertainty in the financial markets meant that any offering, no matter how strong, would probably get hammered.
But by the fourth quarter, things were looking up. A total of 53 companies seeking to raise a collective $10.3 billion filed registration statements in the fourth quarter expressing their desire to go public, a two-year high, meeting pre-recession levels, according to Ernst & Young. And 32 companies hit the market in the fourth quarter, raising a sizable $17.4 billion, compared to just one company that went public in the fourth quarter of 2008, raising a tiny $144 million.
The upward trend does not seem to be a fluke, as Dealogic reported Friday that there were now 75 I.P.O.s in the pipeline looking to raise $13.6 billion. But what could be even more interesting is the number of companies getting ready to file.
“We have a pent-up demand to serve companies that are preparing for or are considering an I.P.O.,” Maria Pinelli, the Americans director of Ernst & Young’s strategic growth markets division, told DealBook.
Currently, technology companies are leading the I.P.O. market, but financial services companies could be a major contributor to future offerings, Ms. Pinelli said. While she would not talk specifically about any one company her firm is working with, Ms. Pinelli did say that many large companies were considering spin-offs of strong parts of their businesses to take to the stock market over the next two quarters.
Large financial firms may see spinning off a business unit as a better way to unlock its value than selling it to rival at a reduced price. Both Citigroup and the American International Group have said that they want to sell parts of their businesses to raise money to pay off government bailout money, but that they are waiting to do so when the time was right. That time may be coming soon via the stock market.
– Cyrus Sanati
The I.P.O. pipeline in the United States is filling up as companies once afraid of braving the capital markets are now lining up to for initial public offerings. A fair number of these companies, especially in the financial industry, are looking to spin off businesses at lucrative prices.
The drought in I.P.O.’s reached its peak earlier last year during the financial crisis, with weeks and months going by without one offering hitting the market. Companies feared that the volatility and uncertainty in the financial markets meant that any offering, no matter how strong, would probably get hammered.
But by the fourth quarter, things were looking up. A total of 53 companies seeking to raise a collective $10.3 billion filed registration statements in the fourth quarter expressing their desire to go public, a two-year high, meeting pre-recession levels, according to Ernst & Young. And 32 companies hit the market in the fourth quarter, raising a sizable $17.4 billion, compared to just one company that went public in the fourth quarter of 2008, raising a tiny $144 million.
The upward trend does not seem to be a fluke, as Dealogic reported Friday that there were now 75 I.P.O.s in the pipeline looking to raise $13.6 billion. But what could be even more interesting is the number of companies getting ready to file.
“We have a pent-up demand to serve companies that are preparing for or are considering an I.P.O.,” Maria Pinelli, the Americans director of Ernst & Young’s strategic growth markets division, told DealBook.
Currently, technology companies are leading the I.P.O. market, but financial services companies could be a major contributor to future offerings, Ms. Pinelli said. While she would not talk specifically about any one company her firm is working with, Ms. Pinelli did say that many large companies were considering spin-offs of strong parts of their businesses to take to the stock market over the next two quarters.
Large financial firms may see spinning off a business unit as a better way to unlock its value than selling it to rival at a reduced price. Both Citigroup and the American International Group have said that they want to sell parts of their businesses to raise money to pay off government bailout money, but that they are waiting to do so when the time was right. That time may be coming soon via the stock market.
– Cyrus Sanati
Brrrr. M&A Volume Still Caught in the Deep Freeze
WSJ, Deal Journal, Jan. 29, 2010:
Where is that M&A recovery?
Global deal volume through Jan. 28 is down 17% from the year-earlier month. And the U.S. was the worst performing region, down 72% and on par with the lows of last summer, according to Dealogic.
True, the year-earlier month included Pfizer’s $68 billion purchase of Wyeth, accounting for 31% of that month’s volume. Still, wasn’t 2010 supposed to be the year the deal market began its comeback? So what does this mean?
As Deal Journal has said before, the deal market is unlikely to come roaring back. Instead, the M&A market should show a “gentle recovery” in 2010. Sure, there are plenty of positive signs: Many corporate buyers are sitting on hordes of cash; the credit markets have improved, and banks are lending again for M&A, albeit selectively. Also, private equity should be more active as both buyers and sellers, and, perhaps more importantly, corporate executives are increasingly considering M&A.
Still, there is one large caveat: Deal activity will go the way of economy–both on the upside and downside.
So what will the M&A market look like this year? Probably a bit like 2004, according to a Robert W. Baird study. That was the year Cingular snagged AT&T Wireless, J.P. Morgan bought Bank One and BofA scooped up Fleet.
Anyway, here are some tidbits from Dealogic’s monthly M&A data:
The Latin American and Caribbean deal market has been the hottest, up 573%, thanks to the America Movil’s acquisition of Carso Global and Heineken’s purchase of FEMSA.
Overall, M&A activity in emerging markets is up 170%.
Credit Suisse Group stands atop the global league tables; Citigroup is atop the U.S. rankings.
Energy investment bank Tudor, Pickering Holt & Co. sits third in the U.S. league tables and sixth world-wide. It advised on Williams Cos.’s deal to merge two of its natural-gas pipeline and energy-processing affiliates.
The value of announced deals involving Chinese targets is up 93%.
Copyright 2008 Dow Jones & Company, Inc. All Rights Reserved
Where is that M&A recovery?
Global deal volume through Jan. 28 is down 17% from the year-earlier month. And the U.S. was the worst performing region, down 72% and on par with the lows of last summer, according to Dealogic.
True, the year-earlier month included Pfizer’s $68 billion purchase of Wyeth, accounting for 31% of that month’s volume. Still, wasn’t 2010 supposed to be the year the deal market began its comeback? So what does this mean?
As Deal Journal has said before, the deal market is unlikely to come roaring back. Instead, the M&A market should show a “gentle recovery” in 2010. Sure, there are plenty of positive signs: Many corporate buyers are sitting on hordes of cash; the credit markets have improved, and banks are lending again for M&A, albeit selectively. Also, private equity should be more active as both buyers and sellers, and, perhaps more importantly, corporate executives are increasingly considering M&A.
Still, there is one large caveat: Deal activity will go the way of economy–both on the upside and downside.
So what will the M&A market look like this year? Probably a bit like 2004, according to a Robert W. Baird study. That was the year Cingular snagged AT&T Wireless, J.P. Morgan bought Bank One and BofA scooped up Fleet.
Anyway, here are some tidbits from Dealogic’s monthly M&A data:
The Latin American and Caribbean deal market has been the hottest, up 573%, thanks to the America Movil’s acquisition of Carso Global and Heineken’s purchase of FEMSA.
Overall, M&A activity in emerging markets is up 170%.
Credit Suisse Group stands atop the global league tables; Citigroup is atop the U.S. rankings.
Energy investment bank Tudor, Pickering Holt & Co. sits third in the U.S. league tables and sixth world-wide. It advised on Williams Cos.’s deal to merge two of its natural-gas pipeline and energy-processing affiliates.
The value of announced deals involving Chinese targets is up 93%.
Copyright 2008 Dow Jones & Company, Inc. All Rights Reserved
Monday, December 28, 2009
M&A Downtrend Buoyed By Strategic Bargains
Abstracted from: Down But Not Out By: Russ Banham, CFO - Vol. 25, No. 9, Pgs. 50-54
Credit crunch hammers deals.
It comes as no surprise to dealmakers: M&A activity took a precipitous drop in late 2008 and early 2009. Global volume was down over 47% in the first half of 2009, and deal values almost 44%. In the first half of the year, US volume dropped nearly 37%, while deal values plummeted 85%. US volume was down over 40% in the first eight months of 2009, compared to the previous year; August's volume of $13 billion hit a 15-year low. Russ Banham's sources attribute much of this decline to credit's unavailability. Credit has constricted dramatically, and many buyers still have large outstanding loans for acquisitions made before the recession hit. Private equity has $400 billion in credit due by 2014, and no one knows what refinancing options might be available if needed, or indeed what a reasonable current valuation might be. The general lack of available credit has certainly tamped down M&A activity, but the economic climate played an equal role in restraining buyers from making deals.
Uncertain economy clouds decisions.
Buyers are probably not yet ready to bet that the fog has lifted. A number of large companies and private equity firms have stockpiled cash for future acquisitions, but few seem confident about future performance for themselves or their targets if the recession lingers. Performance, in turn, impacts pricing. Many targets today are selling for a fraction of their price a few years ago, but valuations could continue to drop unless the business climate changes. Potential buyers are watching and waiting for a clear bottom so they can buy on the upswing when the economy shows clear expansion. With a new accounting rule—FAS 141 (R)—in place that requires acquirors to publish ongoing valuations of acquisitions, 44% of the executives in one Deloitte survey indicated that they are reconsidering purchases. No one wants to publish results on the downswing. Only the highest probability deals are being pursued, the author reports. Interestingly, these deals are beating the odds: a Towers Perrin study shows that in 204 large global deals occurring between September 2008 and May 2009, 75% of the acquirors are now outperforming their tight-fisted peers by over 6%.
Strategic deals and bargains dominate.
Perhaps those strategic buyers recognized that acquisitions can generate growth when business is otherwise less than robust. Strategic buyers expanded their markets by picking up bargains, such as Radware's $18 million acquisition of Alteon from Nortel, which had paid $7.8 billion for it in 2000. Radware expanded its market and added 10,000 customers for a very cost-effective sum. When targets fit particularly well with the buyer, credit is still available, the author suggests. Beckman Coulter bought Olympus's diagnostic lab business, financing the deal with two notes and a stock offering while still keeping the rating agencies happy. The investors responded positively. M&A activity should rebound as buyers focus on quality, strategic fit, and advantageous pricing; sellers develop realistic exit valuations; and a few more quarters of solid earnings restores buyers' confidence.
Abstracted from CFO, published by CFO Publishing Corp., 253 Summer Street, Boston MA 02210. To subscribe, call (800) 877-5416; or visit www.cfo.com.
Credit crunch hammers deals.
It comes as no surprise to dealmakers: M&A activity took a precipitous drop in late 2008 and early 2009. Global volume was down over 47% in the first half of 2009, and deal values almost 44%. In the first half of the year, US volume dropped nearly 37%, while deal values plummeted 85%. US volume was down over 40% in the first eight months of 2009, compared to the previous year; August's volume of $13 billion hit a 15-year low. Russ Banham's sources attribute much of this decline to credit's unavailability. Credit has constricted dramatically, and many buyers still have large outstanding loans for acquisitions made before the recession hit. Private equity has $400 billion in credit due by 2014, and no one knows what refinancing options might be available if needed, or indeed what a reasonable current valuation might be. The general lack of available credit has certainly tamped down M&A activity, but the economic climate played an equal role in restraining buyers from making deals.
Uncertain economy clouds decisions.
Buyers are probably not yet ready to bet that the fog has lifted. A number of large companies and private equity firms have stockpiled cash for future acquisitions, but few seem confident about future performance for themselves or their targets if the recession lingers. Performance, in turn, impacts pricing. Many targets today are selling for a fraction of their price a few years ago, but valuations could continue to drop unless the business climate changes. Potential buyers are watching and waiting for a clear bottom so they can buy on the upswing when the economy shows clear expansion. With a new accounting rule—FAS 141 (R)—in place that requires acquirors to publish ongoing valuations of acquisitions, 44% of the executives in one Deloitte survey indicated that they are reconsidering purchases. No one wants to publish results on the downswing. Only the highest probability deals are being pursued, the author reports. Interestingly, these deals are beating the odds: a Towers Perrin study shows that in 204 large global deals occurring between September 2008 and May 2009, 75% of the acquirors are now outperforming their tight-fisted peers by over 6%.
Strategic deals and bargains dominate.
Perhaps those strategic buyers recognized that acquisitions can generate growth when business is otherwise less than robust. Strategic buyers expanded their markets by picking up bargains, such as Radware's $18 million acquisition of Alteon from Nortel, which had paid $7.8 billion for it in 2000. Radware expanded its market and added 10,000 customers for a very cost-effective sum. When targets fit particularly well with the buyer, credit is still available, the author suggests. Beckman Coulter bought Olympus's diagnostic lab business, financing the deal with two notes and a stock offering while still keeping the rating agencies happy. The investors responded positively. M&A activity should rebound as buyers focus on quality, strategic fit, and advantageous pricing; sellers develop realistic exit valuations; and a few more quarters of solid earnings restores buyers' confidence.
Abstracted from CFO, published by CFO Publishing Corp., 253 Summer Street, Boston MA 02210. To subscribe, call (800) 877-5416; or visit www.cfo.com.
Subscribe to:
Posts (Atom)