From the Blog of the Legal Times, Posted by Jenna Greene on November 18, 2011:
In a sign that antitrust work is rebounding, the number of mergers reviewed by the U.S. Department of Justice and Federal Trade Commission increased for the second year in a row after bottoming out in 2009.
In fiscal year 2011, companies submitted 1,450 Hart-Scott-Rodino Act filings to the antitrust agencies, up from 1,166 filings in 2010 — and a mere 716 in 2009. Under the act, companies are currently required to obtain pre-merger review for deals worth more than $66 million.
In a Nov. 17 speech at the American Bar Association’s fall antitrust forum, acting Antitrust Division head Sharis Pozen said DOJ ”allowed 98 percent of the transactions it reviewed to clear its process without requesting any further information from the parties.”
As for the other 2 percent where there’s a second request for information? “In many of these matters, the parties proposed remedies that the division agreed would solve the competitive problem it had identified,” she said. In other cases, DOJ lawyers went to court, recently blocking the merger of H&R Block and TaxACT. A challenge to AT&T's acquisition of T-Mobile USA is still pending.
As for the Federal Trade Commission, which released its annual report this week, it had less to brag about.
The FTC reported that it missed one key antitrust goal in fiscal year 2011. The agency’s target was to “obtain a positive result” 40 to 60 percent of the time when bringing antitrust actions, whether via wins in court, consent decrees, abandoned transactions or restructured transaction remedies.
In 2011, the FTC came out on top in only 14 of 44 “significant merger and non-merger investigations” — or 32 percent of the time. (In 2010, the FTC succeeded in 23 out of 58 cases, or 40 percent of the time).
Of the 14 wins, nine involved consent decrees, four were merger transactions that were abandoned, and one matter was won on appeal.
Among the losses: a bid to block the merger of clinical laboratory testing companies and an appeal in the U.S. Court of Appeals for the 8th Circuit involving a drug for premature babies with heart defects
The FTC did note that although it missed its target, the tally doesn’t count one additional merger investigation and one restructured transaction. According to the report, these were excluded because ”they did not involve the use of compulsory process. (Compulsory Process refers to a resolution, or vote, adopted by the Commission that authorizes staff to issue subpoenas and civil investigative demands (CIDs); it is the adoption of a Compulsory Process resolution that would have made these cases fall under the definition of substantial as specified by this measure.)”
Monday, November 21, 2011
Thursday, April 21, 2011
Private Equity Poised for Pickup
By Adley Bowden, Managing Editor, PitchBook
U.S. private equity firms as recently as 2007 were closing almost 700+ deals a quarter with over $200 billion of total capital invested. Then in 2008 the bubble burst with the financial crisis shutting down the debt markets and bringing PE activity to an almost complete stop. Since the middle of 2009 PE activity has ever so slowly been improving, to the point where this past quarter PE firms closed a total of 377 U.S. investments totaling $28 billion of capital.
So when will PE activity again resemble 2007? It will be a while, but there is a combination of trends emerging today that might push PE back to pre-crises levels before many would have thought possible. These trends include the returning availability of financing for PE buyouts, $490 billion of PE capital ready for investment, attractive valuation multiples, a continued narrowing of the buyer/seller gap, increasing competition for deals and a business cycle in the early phases of expansion. These trends have all been steadily improving/growing over the last year (think about how you felt about any of these in April last year), however private equity activity has largely remained flat. Something will have to change soon and given private equity's need to put capital to work and the increasing ability for investors to do so, look for deal flow to increase through 2011, with it perhaps approaching pre-crisis levels as soon as 2012 or 2013.
U.S. private equity firms as recently as 2007 were closing almost 700+ deals a quarter with over $200 billion of total capital invested. Then in 2008 the bubble burst with the financial crisis shutting down the debt markets and bringing PE activity to an almost complete stop. Since the middle of 2009 PE activity has ever so slowly been improving, to the point where this past quarter PE firms closed a total of 377 U.S. investments totaling $28 billion of capital.
So when will PE activity again resemble 2007? It will be a while, but there is a combination of trends emerging today that might push PE back to pre-crises levels before many would have thought possible. These trends include the returning availability of financing for PE buyouts, $490 billion of PE capital ready for investment, attractive valuation multiples, a continued narrowing of the buyer/seller gap, increasing competition for deals and a business cycle in the early phases of expansion. These trends have all been steadily improving/growing over the last year (think about how you felt about any of these in April last year), however private equity activity has largely remained flat. Something will have to change soon and given private equity's need to put capital to work and the increasing ability for investors to do so, look for deal flow to increase through 2011, with it perhaps approaching pre-crisis levels as soon as 2012 or 2013.
Wednesday, March 30, 2011
More Good Times Ahead for M.&A., Survey Finds
By MICHAEL J. DE LA MERCED, NYT DealBook blog: Deal-makers are by their very nature an optimistic lot. And as many of the top legal specialists in the field head down to the annual Tulane Corporate Law Institute in New Orleans on Wednesday, it appears that their confidence is rising. Of the roughly 40 top M.&A. bankers and lawyers surveyed by the Brunswick Group, a public relations firm, about 92 percent said they believed the rest of this year would bring continued strong growth in mergers and acquisitions. Much of that was driven by a strong first quarter for deal-making, capped last week by AT&T’s blockbuster $39 billion deal for T-Mobile USA. M.&A. volume rose 58 percent for the quarter from the period a year earlier, in the best start since 2007, according to preliminary data from Thomson Reuters. Roughly half of the deal-makers surveyed by Brunswick said they believe that the biggest contributor to rising M.&A. was greater confidence among management teams and company boards. (Other factors include the improving economy and more buying firepower in the form of cash on corporate balance sheets and the availability of cheap credit.) That confidence could be seen in part through hostile deals, including an unsolicited $5.7 billion bid for Cephalon by Valeant Pharmaceuticals International announced on Tuesday. According to those surveyed, the majority of deals seen this year will continue primarily to be domestic ones by emboldened strategic buyers. Still, Asia is considered to be the most fertile source of international buyers of American assets — so long as those would-be bidders are not stymied by regulatory hurdles, which 40 percent of respondents identified as the most likely obstacles to deals. Much of the rest of this year’s survey mirrored the results of last year’s, including the most likely active sectors for deals (health care and energy) and the most likely problems for hostile bidders (overpaying and staggered boards, in which only a portion of directors are up for election in any given year). But 57 percent of respondents said that they expected more deals to be done using just cash, more than double from last year. Part of that is likely a reflection of the tremendous stores of cash companies have built up, as well as the willingness of banks to lend. Part of it may also be some lingering uncertainty over the potential vicissitudes of the markets. Yet it may also reflect even more bullishness, suggesting that the shares of potential acquirers still have some room to grow and therefore are not worth using as currency — at least not right now. In other words, the good times may continue to roll. 2011 Brunswick Group M&A Survey
Friday, March 04, 2011
Deal Making Gets Off to a Strong Start in 2011
By Stephen Grocer, WSJ DealJournal, March 3, 2011:
Two months into the year, M&A is off to its best start since Lehman failed and the flow of deals slowed to a trickle.
Global M&A volume this year stands at $435 billion, a 9% increase from 2010. The biggest jumps in deal activity came in the U.S. and Asia, where deal volume was up 34% and 42% respectively. Europe saw a 9% fall in deal volume.
M&A activity did slow in February. Volume world-wide slipped 7% to $210 billion in February from January. U.S. volume last month was essentially flat from January.
Below are some more tidbits from Dealogic.
– Oil and gas has been the busiest industry for deal making, with $65.8 billion in announced transactions. Real estate and finance follow with $9.4 billion and $45.1 billion, respectively.
–The biggest deals in the oil-and-gas sector? BP’s announced $9 billion acquisition of a 30% stake in 23 of Reliance Industries’ oil and gas blocks and Ensco’s $7.5 billion acquisition of Pride International.
–Deutsche Borse’s $10.5 billion deal for NYSE Euronext ranks as the largest deal in February.
–J.P. Morgan Chase still tops the globally and U.S. league tables. Goldman is No. 2 globally, while Morgan is No. 2 in the U.S.
–Through the same period last year, J.P. Morgan ranked eighth global and didn’t crack the top 10 in the U.S.
Two months into the year, M&A is off to its best start since Lehman failed and the flow of deals slowed to a trickle.
Global M&A volume this year stands at $435 billion, a 9% increase from 2010. The biggest jumps in deal activity came in the U.S. and Asia, where deal volume was up 34% and 42% respectively. Europe saw a 9% fall in deal volume.
M&A activity did slow in February. Volume world-wide slipped 7% to $210 billion in February from January. U.S. volume last month was essentially flat from January.
Below are some more tidbits from Dealogic.
– Oil and gas has been the busiest industry for deal making, with $65.8 billion in announced transactions. Real estate and finance follow with $9.4 billion and $45.1 billion, respectively.
–The biggest deals in the oil-and-gas sector? BP’s announced $9 billion acquisition of a 30% stake in 23 of Reliance Industries’ oil and gas blocks and Ensco’s $7.5 billion acquisition of Pride International.
–Deutsche Borse’s $10.5 billion deal for NYSE Euronext ranks as the largest deal in February.
–J.P. Morgan Chase still tops the globally and U.S. league tables. Goldman is No. 2 globally, while Morgan is No. 2 in the U.S.
–Through the same period last year, J.P. Morgan ranked eighth global and didn’t crack the top 10 in the U.S.
Friday, January 21, 2011
Securities class actions inched up in 2010; those targeting M&As surged
Karen Sloan, The National Law Journal, January 19, 2011:
2010 was a relatively slow year for federal securities class action filings, according to the latest research from the Securities Class Action Clearinghouse — a partnership between Stanford Law School and Cornerstone Research. There were 176 filings throughout the year, a slight increase from the 168 filings in 2009 but nearly 10% below the average from the previous 13 years. Filings were significantly slower in the first half of the 2010 but picked up later in the year. The past year saw a surge in the number of class action filings resulting from alleged disclosure violations in mergers and acquisitions. That number rose from seven in 2009 to 40 in 2010. The report points out that the 20% increase in merger activity last year does not alone explain the much larger increase in M&A securities class action filings. "The sharp increase in federal litigation alleging disclosure violations in M&A transactions suggests that plaintiff lawyers are scrambling for new business as traditional fraud cases seem to be on the decline," said Joseph Grundfest, the director of the Stanford Law School Securities Class Action Clearinghouse. "There is little reason to believe that this trend will reverse or slow down; if anything, plaintiff lawyers may well bring an increasing percentage of these claims in federal court in an effort to control the litigation and share in any fees that may result." Continuing with a trend from 2009, filings related to the credit crisis waned last year, making up slightly more than 7% of filings — down from nearly 33% last year. Settlement rates for those filings tend to be lower compared with other types of filings, though there is no difference in dismissal rates, the study found. The research shows that firms with recent initial public offerings are most at risk to be targeted by securities class actions, said John Gould, senior vice president of Cornerstone Research. In fact, companies are most likely to be sued in their second year of public trading, when they have a 4% chance of being targeted. Exposure to litigation typically decreases over time, though a newly public company has a nearly 34% chance of being sued in its first 11 years. Among those newly public companies targeted by suits last year were 12 Chinese entities, a trend that appears to be emerging, Gould said. Foreign companies were targets in nearly 16% of the filings in 2010, a record high. "These are companies that just became public in the U.S. in the past year or two," Gould said. One out of every 19 companies on the Standard & Poor's 500 index was a defendant in a class action filing in the past year, which is down from the average one in 15 during the previous decade. Filings against companies in the financial sector declined, while filings against health care companies rose. "With the wave of credit-crisis filings behind us, the industry focus for class action filings shifted to health care, where more than one out of every seven S&P 500 companies was involved in a class action," Gould said. For-profit colleges were also the target of 10 securities class action filings, which came on the heels of several government reports that alleged that prospective students were provided with fraudulent information and had low loan-repayment rates. Karen Sloan can be contacted at ksloan@alm.com.
2010 was a relatively slow year for federal securities class action filings, according to the latest research from the Securities Class Action Clearinghouse — a partnership between Stanford Law School and Cornerstone Research. There were 176 filings throughout the year, a slight increase from the 168 filings in 2009 but nearly 10% below the average from the previous 13 years. Filings were significantly slower in the first half of the 2010 but picked up later in the year. The past year saw a surge in the number of class action filings resulting from alleged disclosure violations in mergers and acquisitions. That number rose from seven in 2009 to 40 in 2010. The report points out that the 20% increase in merger activity last year does not alone explain the much larger increase in M&A securities class action filings. "The sharp increase in federal litigation alleging disclosure violations in M&A transactions suggests that plaintiff lawyers are scrambling for new business as traditional fraud cases seem to be on the decline," said Joseph Grundfest, the director of the Stanford Law School Securities Class Action Clearinghouse. "There is little reason to believe that this trend will reverse or slow down; if anything, plaintiff lawyers may well bring an increasing percentage of these claims in federal court in an effort to control the litigation and share in any fees that may result." Continuing with a trend from 2009, filings related to the credit crisis waned last year, making up slightly more than 7% of filings — down from nearly 33% last year. Settlement rates for those filings tend to be lower compared with other types of filings, though there is no difference in dismissal rates, the study found. The research shows that firms with recent initial public offerings are most at risk to be targeted by securities class actions, said John Gould, senior vice president of Cornerstone Research. In fact, companies are most likely to be sued in their second year of public trading, when they have a 4% chance of being targeted. Exposure to litigation typically decreases over time, though a newly public company has a nearly 34% chance of being sued in its first 11 years. Among those newly public companies targeted by suits last year were 12 Chinese entities, a trend that appears to be emerging, Gould said. Foreign companies were targets in nearly 16% of the filings in 2010, a record high. "These are companies that just became public in the U.S. in the past year or two," Gould said. One out of every 19 companies on the Standard & Poor's 500 index was a defendant in a class action filing in the past year, which is down from the average one in 15 during the previous decade. Filings against companies in the financial sector declined, while filings against health care companies rose. "With the wave of credit-crisis filings behind us, the industry focus for class action filings shifted to health care, where more than one out of every seven S&P 500 companies was involved in a class action," Gould said. For-profit colleges were also the target of 10 securities class action filings, which came on the heels of several government reports that alleged that prospective students were provided with fraudulent information and had low loan-repayment rates. Karen Sloan can be contacted at ksloan@alm.com.
Wednesday, January 19, 2011
Dealmaker Confidence High as M&A Starts Off New Year with a Bang
Posted by Tom Huddleston Jr., The AmLaw Daily, January 19, 2011:
Shortly after the champagne corks stopped popping, the M&A market started to take off, with a blast of new large deals announced globally.
The Financial Times reported on Monday that, during the first ten days of 2011, combined deal volume totaled $83 billion, up from $67 billion last year. Deal lawyers see this as an example of rising confidence among companies representing a wide array of industry sectors, as well as a reflection of a surplus of cash on the balance sheet.
"[Everyone] looks and says that the improved financing markets and the large accumulation of cash by the large strategics is certainly a factor," says Allison Schneirov, an M&A partner at Skadden, Arps, Slate, Meagher & Flom.
U.S. companies are reported to have roughly $1 trillion in cash on their balance sheets; many are expected to face shareholder pressure to put that cash to use. All that, say deals lawyers and analysts, adds up to what could be the biggest year for M&A since 2007.
Link to article: http://amlawdaily.typepad.com/amlawdaily/2011/01/manda-jan2011.html
Shortly after the champagne corks stopped popping, the M&A market started to take off, with a blast of new large deals announced globally.
The Financial Times reported on Monday that, during the first ten days of 2011, combined deal volume totaled $83 billion, up from $67 billion last year. Deal lawyers see this as an example of rising confidence among companies representing a wide array of industry sectors, as well as a reflection of a surplus of cash on the balance sheet.
"[Everyone] looks and says that the improved financing markets and the large accumulation of cash by the large strategics is certainly a factor," says Allison Schneirov, an M&A partner at Skadden, Arps, Slate, Meagher & Flom.
U.S. companies are reported to have roughly $1 trillion in cash on their balance sheets; many are expected to face shareholder pressure to put that cash to use. All that, say deals lawyers and analysts, adds up to what could be the biggest year for M&A since 2007.
Link to article: http://amlawdaily.typepad.com/amlawdaily/2011/01/manda-jan2011.html
Tuesday, January 18, 2011
Pepperdine Private Capital 2011 Economic Forecast
2011 Economic Forecast Report: Complimentary Download
Some highlights:
1. GDP seen at 1.98% with probability of recession at 28.43%.
2. Housing expected to decline 1.76% while S&P seen increasing by 6.46%.
3. ‘Increased access to capital’ seen as policy that would help spur job creation the most
4. Most participants ‘somewhat more confident’ in U.S. economic growth in 2011
5. Likewise, most participants ‘somewhat more confident’ in growth prospects of privately held businesses
6. Most participants more incentivized to innovate today
7. 80% of business owners feel economic stimulus measures distributed unfairly
8. Business owners believe a stronger dollar would be more beneficial than weaker dollar
9. Compared to one year ago, respondents more likely to invest in US, Brazil, India, Canada, Australia, and China. Less likely to invest or expand in Japan, EU, Mexico, and Russia.
10. Most respondents believe raising the $14.3 trillion US debt ceiling would be detrimental to US businesses.
A link to download the complimentary Pepperdine Private Capital Markets 2011 economic forecast report can be accessed here: http://www.linkedin.com/redirect?url=http%3A%2F%2Fpepperdine%2Equaltrics%2Ecom%2FSE%2F%3FSID%3DSV_8GNkCURw7bC3gVu&urlhash=-gjL&_t=tracking_anet.
Some highlights:
1. GDP seen at 1.98% with probability of recession at 28.43%.
2. Housing expected to decline 1.76% while S&P seen increasing by 6.46%.
3. ‘Increased access to capital’ seen as policy that would help spur job creation the most
4. Most participants ‘somewhat more confident’ in U.S. economic growth in 2011
5. Likewise, most participants ‘somewhat more confident’ in growth prospects of privately held businesses
6. Most participants more incentivized to innovate today
7. 80% of business owners feel economic stimulus measures distributed unfairly
8. Business owners believe a stronger dollar would be more beneficial than weaker dollar
9. Compared to one year ago, respondents more likely to invest in US, Brazil, India, Canada, Australia, and China. Less likely to invest or expand in Japan, EU, Mexico, and Russia.
10. Most respondents believe raising the $14.3 trillion US debt ceiling would be detrimental to US businesses.
A link to download the complimentary Pepperdine Private Capital Markets 2011 economic forecast report can be accessed here: http://www.linkedin.com/redirect?url=http%3A%2F%2Fpepperdine%2Equaltrics%2Ecom%2FSE%2F%3FSID%3DSV_8GNkCURw7bC3gVu&urlhash=-gjL&_t=tracking_anet.
Tuesday, December 21, 2010
The Thin Gruel of Rising M&A Volume
Alessandro Pasetti, of Dow Jones Investment Banker, reports:
The banking industry remains in a regulatory flux and there is thin gruel for rainmakers contained within Dealogic’s preliminary end-of-year data out today. A sharp rebound in credit is necessary to spur M&A on a large scale. That still feels a long way off, and may never reach the pre-credit crunch heights.
The key Dealogic numbers are:
–Announced global M&A activity this year was nearly a fifth higher in dollar terms than last year, with emerging markets snatching a record-breaking third of the world-wide total and surpassing Europe for the first time.
–Cross-border transactions account for an increased proportion of the rally.
–North America, with $979.7 billion of deals, is ahead of all. Japan’s deal volume is down 36% year-on-year to $90 billion, the only country bucking the trend of an M&A pick-up across the globe.
–Energy led the industry ranking for the first time on record, having recorded its highest yearly volume ever. The figure is skewed by the $42.6 billion acquisition of Brazilian oil & gas assets by Petrobras, the largest deal of the year.
–Emerging-market volume reached $876.9 billion in 2010, up 56% from $561.2 billion in 2009. It accounted for 32% of global M&A, the highest share on record. The so-called BRIC nations (Brazil, Russia, India and China) accounted for 52% of emerging-market volume.
–Financial-sponsor buyouts totaled $183.8 billion in 2010, up 74% from $105.5 billion in 2009. Secondary buyouts reached $56.7 billion in 2010, the highest since 2007.
–Cross-border volume reached $969.2 billion via 9,573 deals, up 62% from $598.6 billion via 8,328 deals in 2009. Emerging markets accounted for 35% of total cross-border volume, at $336.3 billion.
Fortunes over the next year or two ride on whether banks will get the loan engine firing on all cylinders for clients across the rating spectrum. Of course, lending conditions by financial institutions have eased recently, but it certainly doesn’t feel as if a credit splurge is around the corner.
As growth stalls in western economies, M&A will struggle to record a significant rebound next year, with activity likely to be driven by defensive moves. Defensive, opportunistic, strategic. It doesn’t much matter to a banker what results in fees, though arguably a vigorous deal-making world needs all three to be kicking around.
Slivers of light are appearing. Blackstone Group gets in gear to launch a $15 billion buyout fund, Apax is following suit, so private equity may provide the necessary fillip on the back of opportunities among distressed assets.
Then there are the emerging markets.
The BRICs are providing bankers with trends and M&A activity likely to keep them busy in the medium term. Growth potential remains strong in the group but there are political risks bubbling up and surging competition for mandates. This suggests only the few with scale will emerge victorious–and the Chinese banks, with longer-term aspirations to be as powerful as Goldman Sachs Group, will complicate that.
To visit the Dow Jones Investment Banker Web site, click HERE.
The banking industry remains in a regulatory flux and there is thin gruel for rainmakers contained within Dealogic’s preliminary end-of-year data out today. A sharp rebound in credit is necessary to spur M&A on a large scale. That still feels a long way off, and may never reach the pre-credit crunch heights.
The key Dealogic numbers are:
–Announced global M&A activity this year was nearly a fifth higher in dollar terms than last year, with emerging markets snatching a record-breaking third of the world-wide total and surpassing Europe for the first time.
–Cross-border transactions account for an increased proportion of the rally.
–North America, with $979.7 billion of deals, is ahead of all. Japan’s deal volume is down 36% year-on-year to $90 billion, the only country bucking the trend of an M&A pick-up across the globe.
–Energy led the industry ranking for the first time on record, having recorded its highest yearly volume ever. The figure is skewed by the $42.6 billion acquisition of Brazilian oil & gas assets by Petrobras, the largest deal of the year.
–Emerging-market volume reached $876.9 billion in 2010, up 56% from $561.2 billion in 2009. It accounted for 32% of global M&A, the highest share on record. The so-called BRIC nations (Brazil, Russia, India and China) accounted for 52% of emerging-market volume.
–Financial-sponsor buyouts totaled $183.8 billion in 2010, up 74% from $105.5 billion in 2009. Secondary buyouts reached $56.7 billion in 2010, the highest since 2007.
–Cross-border volume reached $969.2 billion via 9,573 deals, up 62% from $598.6 billion via 8,328 deals in 2009. Emerging markets accounted for 35% of total cross-border volume, at $336.3 billion.
Fortunes over the next year or two ride on whether banks will get the loan engine firing on all cylinders for clients across the rating spectrum. Of course, lending conditions by financial institutions have eased recently, but it certainly doesn’t feel as if a credit splurge is around the corner.
As growth stalls in western economies, M&A will struggle to record a significant rebound next year, with activity likely to be driven by defensive moves. Defensive, opportunistic, strategic. It doesn’t much matter to a banker what results in fees, though arguably a vigorous deal-making world needs all three to be kicking around.
Slivers of light are appearing. Blackstone Group gets in gear to launch a $15 billion buyout fund, Apax is following suit, so private equity may provide the necessary fillip on the back of opportunities among distressed assets.
Then there are the emerging markets.
The BRICs are providing bankers with trends and M&A activity likely to keep them busy in the medium term. Growth potential remains strong in the group but there are political risks bubbling up and surging competition for mandates. This suggests only the few with scale will emerge victorious–and the Chinese banks, with longer-term aspirations to be as powerful as Goldman Sachs Group, will complicate that.
To visit the Dow Jones Investment Banker Web site, click HERE.
Monday, December 20, 2010
Corporate Deal Makers Cautiously Return
December 20, 2010, 10:54 am — Updated: 12:51 pm -->
By EVELYN M. RUSLI, NYT DealBook:
As the dark clouds of economic uncertainty lift, the environment for corporate deal-making is looking brighter.
With record cash on their balance sheets, United States companies are once again willing to invest in growth, according to McKinsey & Company’s quarterly report on economic conditions. The report, set to be released on Monday afternoon, found that a majority of executives are not postponing acquisitions or capital investment. And many are looking abroad, eager to capitalize on the fast-growing emerging economies and the rising influence of China, India and Brazil.
William Huyett, a director at McKinsey, said companies were cautiously optimistic, a positive sign for deal-making activity in 2011.
“First and foremost, there is confidence that the real markets are starting to grow again, unemployment is starting to drop and capital markets are starting to stabilize,” Mr. Huyett said. “Boards of directors are less skittish in pursuing transactions. We’re far from out of the woods, but the period of absolute uncertainty has passed.”
That said, McKinsey’s findings represent a more tempered view among executives compared with other recent reports. Thomson Reuters and Freeman Consulting Services recently predicted a 36 percent rise in global deal activity to $3 trillion in 2011. PricewaterhouseCoopers announced this month that “key conditions are in place for a resurgence in deal-making in 2011.”
McKinsey interviewed 2,076 executives in early December from a broad swath of industries. According to the results, 54 percent said they were not delaying or failing to pursue strategic deals, versus 25 percent who said they were holding back. And about 22 percent were undecided. The results, noted Mr. Huyett, were “remarkably consistent” across all sectors.
The availability of credit has also improved. Some 44 percent said their company had received financing in the last six months. Among those who said they were postponing deals, only 16 percent cited credit issues for their decision — an improvement from 30 percent in September.
Most executives said they were looking to the emerging markets for growth, particularly India, China and Brazil. More than 75 percent expect the three countries’ influence to grow over the next five years, while the clout of developed economies, like the United States, the European Union and Japan, will stagnate or recede. Unsurprisingly, the vast majority of companies that do play in emerging markets — some 72 percent — expect a greater share of revenue or profit from these regions in the coming years.
Mr. Huyett said he expected companies to take a more moderate approach to deal-making, especially amid the current volatility.
“It’s better to take a measured course and pursue M.&A. systematically, instead of a reflexive jump in the pool that companies may regret,” he said.
By EVELYN M. RUSLI, NYT DealBook:
As the dark clouds of economic uncertainty lift, the environment for corporate deal-making is looking brighter.
With record cash on their balance sheets, United States companies are once again willing to invest in growth, according to McKinsey & Company’s quarterly report on economic conditions. The report, set to be released on Monday afternoon, found that a majority of executives are not postponing acquisitions or capital investment. And many are looking abroad, eager to capitalize on the fast-growing emerging economies and the rising influence of China, India and Brazil.
William Huyett, a director at McKinsey, said companies were cautiously optimistic, a positive sign for deal-making activity in 2011.
“First and foremost, there is confidence that the real markets are starting to grow again, unemployment is starting to drop and capital markets are starting to stabilize,” Mr. Huyett said. “Boards of directors are less skittish in pursuing transactions. We’re far from out of the woods, but the period of absolute uncertainty has passed.”
That said, McKinsey’s findings represent a more tempered view among executives compared with other recent reports. Thomson Reuters and Freeman Consulting Services recently predicted a 36 percent rise in global deal activity to $3 trillion in 2011. PricewaterhouseCoopers announced this month that “key conditions are in place for a resurgence in deal-making in 2011.”
McKinsey interviewed 2,076 executives in early December from a broad swath of industries. According to the results, 54 percent said they were not delaying or failing to pursue strategic deals, versus 25 percent who said they were holding back. And about 22 percent were undecided. The results, noted Mr. Huyett, were “remarkably consistent” across all sectors.
The availability of credit has also improved. Some 44 percent said their company had received financing in the last six months. Among those who said they were postponing deals, only 16 percent cited credit issues for their decision — an improvement from 30 percent in September.
Most executives said they were looking to the emerging markets for growth, particularly India, China and Brazil. More than 75 percent expect the three countries’ influence to grow over the next five years, while the clout of developed economies, like the United States, the European Union and Japan, will stagnate or recede. Unsurprisingly, the vast majority of companies that do play in emerging markets — some 72 percent — expect a greater share of revenue or profit from these regions in the coming years.
Mr. Huyett said he expected companies to take a more moderate approach to deal-making, especially amid the current volatility.
“It’s better to take a measured course and pursue M.&A. systematically, instead of a reflexive jump in the pool that companies may regret,” he said.
Friday, December 10, 2010
Why M.&A. May Rebound
BY HEIDI N. MOORE, NYT DealBook, December 10, 2010:
After a long drought, companies and private equity firms may be ready to make deals again, oddly enough because of cash, debt and taxes.
Here are the main reasons why:
Cash
A consensus is emerging from several prominent dealmaking experts that mergers are coming back, largely because companies can now afford them. U.S. companies have a near-record $1.93 trillion of cash on hand, according to Federal Reserve data.
Debt
Low interest rates have spurred corporate borrowing and refinancing at unprecedented levels. Private equity firms, which are enthusiastic users of junk bonds, have driven junk volumes to an all-time record this year, according to new data from Thomson Financial.
Big borrowing is likely to continue. Analysts at investment bank Keefe Bruyette & Woods predicted that the Fed will keep interest rates low throughout 2011. That would keep the debt markets open for a long enough time for private equity, in particular, to refinance their companies’ crushing debt loads.
Taxes
The potential of new stimulus in the form of tax cuts that will benefit companies and rich individuals. Congress is currently hammering those out.
But despite the increasingly ideal conditions, deal makers may have to prepare themselves for potential disappointment. For one, American corporations may still prove themselves unwilling to spend on acquisitions as long as the economy’s growth still looks tenuous.
That kind of caution has prevailed so far. Despite record cash levels, companies have bunkered down, presumably traumatized by the financial crisis and reluctant to deploy their cash for activities like hiring. It’s a big reason why the national unemployment rate has hovered about 10 percent for over 18 months even as corporate cash balances hit their highest levels in 50 years.But despite the increasingly ideal conditions, deal makers may have to prepare themselves for potential disappointment. For one, American corporations may still prove themselves unwilling to spend on acquisitions as long as the economy’s growth still looks tenuous.
Hope, however, springs eternal. PricewaterhouseCoopers, for instance, struck an optimistic note for 2011 in a report on Thursday, indicating that incipient merger activity this year is a leading indicator of … more mergers. PwC believes that companies are out of recovery mode and ready to make acquisitions again to grow.
PwC also said that private equity is returning to the fray. A veteran dealmaker, Kohlberg Kravis Roberts & Co. founder Henry Kravis, strongly agreed this week. Kravis showed some optimistic swagger in a speech at a Goldman Sachs financial services conference this week, in which he lauded private equity’s ability to pay more for companies as a sign that private equity is ready to drive deals again after a two-year hiatus.
The observations from Kravis and PwC’s report echo the same outlook from veteran investment banker Kenneth D. Moelis at a conference last week. Moelis believesthat M&A will recover, but slowly.
“These bubbles don’t get reblown quickly,” he said last week.
There is still a question, however, of whether companies will actually go out there and start buying.
One merger arbitrager said that companies are dying to make acquisitions again, but there is very little interest from shareholders in doing so.
And if and when investors become vocal about how companies deploy their excess money, the shareholders would have to support deals and strongly oppose low-return uses of the cash, like raising dividends or staging big stock buybacks.
But there is another option: companies might do acquisitions, but just spend very modestly. Small deals would allow companies to make acquisitions without digging to deeply into their treasure chests.
And, even if all this is enough to increase confidence to pull the trigger— and prices are right— cautionary tales loom large. There are still significant problems being worked out from the past dealmaking boom.
There are different views on whether those past merger and debt issues will be damning enough to put the brakes on new deals.
On the optimistic side is Tim Hartnett, who leads the U.S. private equity practice for PwC. He said this week that an anticipated high volume of distressed private equity deals never materialized because companies cut costs, cleaned up their balance sheets and “that Doomsday scenario never happened.”
Meanwhile, research from Moody’s Investors Service indicates the weak volume isn’t necessarily a reflection of responsible management. A Moody’s report this week suggested that some private equity firms may have saved their portfolio companies from bankruptcy through high-wire financial engineering: buying up their portfolio companies’ distressed debt and then paying creditors with other kinds of securities.
Private equity firms particularly favored a certain kind of debt with a risky feature called “payment in kind,” or PIK, toggles. PIK toggles are a feature that allow companies to pay back their debt with more debt. The companies that use PIK toggles are overwhelmingly backed by private equity firms. Of the 62 companies that Moody’s studied, the majority were backed by PE firms Apollo and TPG, who were active proponents of PIK toggles.
The companies that favored PIK toggles have also been defaulting at a higher rate than expected. Moody’s said that in 2009, nearly 30 percent of the companies that used PIK toggles during the boom went on to default – or nearly double the rate of ; Moody’s also found a close link between distressed exchanges, PIK toggles and default. A separate academic study last year found that 50 percent of companies that used distressed exchanges to save themselves from bankruptcy eventually went on to fail anyway.
The companies that suffered as a result of this kind of financial engineering are still stumbling through, but barely. Moody’s says companies like Clear Channel Communications, Harrah’s and other boom-time buyouts are now at high risk of defaulting on their PIK-toggled debt.
And those companies are owned by the same PE firms that are enthusiastic about a new round of deal-making.
The lesson: With problems from the past still lurking, it pays for deal makers to be cautious, even as M.&A. rebounds.
Tuesday, December 07, 2010
L.B.O.’s: Don’t Call It a Comeback
December 7, 2010, 10:02 am
By HEIDI N. MOORE , NYT DealBook
The buyouts last month of the big consumer names J. Crew and Del Monte were two promising signs that private equity firms were ready to come out and play again.
But don’t call it a comeback.
Sure, on the surface, there seems to be a reasonable resurrection. The volume of global leveraged buyouts have more than quadrupled this year, according to Dealogic data. Private equity firms have spent $73.6 billion on 193 deals in 2010, compared with $16 billion for 76 buyouts over the same period in 2009, noted Dealogic.
But dig deeper into the financing, and the story looks grimmer.
The private equity business runs on debt — mainly the leveraged loans and junk bonds it takes out to buy companies. As DealBook has noted, there has been a boom in such debt this year, with new records set for issuance.
That is not necessarily a good sign. Rather than funding new deals, most of the financing activity has helped private equity firms sustain their current investments, which would be in deep trouble without the help. It’s a survival play, as their portfolio companies are loaded up with debt that is quickly coming due.
The wall of refinancing that these firms face may be $100 billion more than many expected, according to Moody’s.
And private equity firms are trying to sign longer loans to avoid having to refinance again soon. The average L.B.O. loan is now 5.6 years in length compared with 5.2 years just last year.
According to Dealogic, private equity firms are signing very few fresh deals. The current volume of loans backing new buyouts is 89 percent below the record of $681.5 billion set by this time in 2007. The value of deals that private equity firms have exited is 44 percent lower than the $279.6 billion they racked up by this time in 2007.
As the industry battles its dependency on debt, private equity’s long winter may rage on for awhile.
The chill seems to have set in shortly after two blockbuster demonstrations of private equity power in 2007: the buyout of Hilton Hotels and the initial public offering of the Blackstone Group.
In 2008, private equity firms broke up — or tried to break up — richly priced deals they had signed in flusher times.
In 2009, private equity firms had plenty of cash but little access to the debt markets to deploy their strategies.
In 2010, private equity firms, with two years of weak exits and skimpy returns, had trouble fund-raising. According to Prequin, 242 funds raised $116 billion in the first half of 2010 compared with 336 funds that raised $171 billion in the second half of 2009.
In 2011, the industry’s revival may depend on whether firms can work through their debt issues while the markets are still open. To do that, private equity may have to scale back its ambitions and operate more cautiously, looking for known quantities rather than grand risks and high returns.
As the longtime investment banker Kenneth D. Moelis pointed out at a conference last week, the J. Crew and Del Monte deals were still relatively small in size for private equity deals. He predicted that such smaller buyouts would become more common, as private equity gave up its dream of the $100 billion “Big One” and focused on the more mundane job of turning around midmarket companies.
Consider one of the bigger potential deals: the Carlyle Group’s public offering. While Blackstone cashed out when times were good and valuations were high, William E. Conway Jr., a Carlyle founder, recently told Bloomberg News that the firm was going public because it was harder to get access to capital.
It’s a good insight into private equity in the aftermath of the financial crisis: the big players, once known to embrace risk and swagger, are stuck looking for sustenance for their troubled companies.
The barbarians at the gate are looking more like beggars these days.
By HEIDI N. MOORE , NYT DealBook
The buyouts last month of the big consumer names J. Crew and Del Monte were two promising signs that private equity firms were ready to come out and play again.
But don’t call it a comeback.
Sure, on the surface, there seems to be a reasonable resurrection. The volume of global leveraged buyouts have more than quadrupled this year, according to Dealogic data. Private equity firms have spent $73.6 billion on 193 deals in 2010, compared with $16 billion for 76 buyouts over the same period in 2009, noted Dealogic.
But dig deeper into the financing, and the story looks grimmer.
The private equity business runs on debt — mainly the leveraged loans and junk bonds it takes out to buy companies. As DealBook has noted, there has been a boom in such debt this year, with new records set for issuance.
That is not necessarily a good sign. Rather than funding new deals, most of the financing activity has helped private equity firms sustain their current investments, which would be in deep trouble without the help. It’s a survival play, as their portfolio companies are loaded up with debt that is quickly coming due.
The wall of refinancing that these firms face may be $100 billion more than many expected, according to Moody’s.
And private equity firms are trying to sign longer loans to avoid having to refinance again soon. The average L.B.O. loan is now 5.6 years in length compared with 5.2 years just last year.
According to Dealogic, private equity firms are signing very few fresh deals. The current volume of loans backing new buyouts is 89 percent below the record of $681.5 billion set by this time in 2007. The value of deals that private equity firms have exited is 44 percent lower than the $279.6 billion they racked up by this time in 2007.
As the industry battles its dependency on debt, private equity’s long winter may rage on for awhile.
The chill seems to have set in shortly after two blockbuster demonstrations of private equity power in 2007: the buyout of Hilton Hotels and the initial public offering of the Blackstone Group.
In 2008, private equity firms broke up — or tried to break up — richly priced deals they had signed in flusher times.
In 2009, private equity firms had plenty of cash but little access to the debt markets to deploy their strategies.
In 2010, private equity firms, with two years of weak exits and skimpy returns, had trouble fund-raising. According to Prequin, 242 funds raised $116 billion in the first half of 2010 compared with 336 funds that raised $171 billion in the second half of 2009.
In 2011, the industry’s revival may depend on whether firms can work through their debt issues while the markets are still open. To do that, private equity may have to scale back its ambitions and operate more cautiously, looking for known quantities rather than grand risks and high returns.
As the longtime investment banker Kenneth D. Moelis pointed out at a conference last week, the J. Crew and Del Monte deals were still relatively small in size for private equity deals. He predicted that such smaller buyouts would become more common, as private equity gave up its dream of the $100 billion “Big One” and focused on the more mundane job of turning around midmarket companies.
Consider one of the bigger potential deals: the Carlyle Group’s public offering. While Blackstone cashed out when times were good and valuations were high, William E. Conway Jr., a Carlyle founder, recently told Bloomberg News that the firm was going public because it was harder to get access to capital.
It’s a good insight into private equity in the aftermath of the financial crisis: the big players, once known to embrace risk and swagger, are stuck looking for sustenance for their troubled companies.
The barbarians at the gate are looking more like beggars these days.
Monday, November 15, 2010
M.&A. to Hit $3 Trillion in 2011, Report Says
By EVELYN M. RUSLI, NYT DealBook, November 15, 2010
The recent rebound in mergers and acquisitions is expected to strengthen significantly next year, according to a new report, with global deal activity on track to rise 36 percent, to $3.04 trillion.
The total would be the highest amount since 2007, when the market logged $4.28 trillion in deals in the months that preceded the financial crisis.
A widespread surge in confidence will power the rally, according to the report, a joint project by Thomson Reuters and Freeman Consulting Services that included interviews with 150 executives from a broad swath of industries.
“Respondents in every sector are forecasting increased mergers and acquisitions for 2011,” Matthew Toole, Thomson Reuters’ director of deals intelligence, said in an interview. “Capital markets activity will also continue to be robust, with increased corporate bond issuance and syndicated lending, driven by refinancing activity.”
The numbers tell the story.
The totals are far from levels before the recession, when leveraged buyouts frequently fetched multiples of 15 times earnings before interest, tax, depreciation and amortization, but the appetite for deals is gaining momentum despite lingering concerns in the credit markets.
After hitting a recent low in 2009, with $1.98 trillion in deals, the volume of mergers and acquisitions is expected to rise 12.6 percent this year, to $2.23 trillion, and pick up speed in 2011, according to the report.
On the equity capital markets side, activity is forecast to rise 21 percent next year, to $920 million, while corporate bond issuance should gain 14 percent, to $1.28 trillion.
The report also predicted that two sectors would shine in 2011 for deals: real estate and financial firms. After being pummeled by the credit crisis, many companies from these industries will need to restructure their businesses, pursue consolidation, divest assets or simply play catch-up.
“Financials seem to be the most bullish on a percentage basis,” Mr. Toole said. “This year we saw Goldman Sachs divesting its prop trading desk. … Now we’ll see it on a fuller scale.”
Mr. Toole added that investors should also expect decent deal volume in the health care sector, where competition is driving mergers and acquisitions.
The recent rebound in mergers and acquisitions is expected to strengthen significantly next year, according to a new report, with global deal activity on track to rise 36 percent, to $3.04 trillion.
The total would be the highest amount since 2007, when the market logged $4.28 trillion in deals in the months that preceded the financial crisis.
A widespread surge in confidence will power the rally, according to the report, a joint project by Thomson Reuters and Freeman Consulting Services that included interviews with 150 executives from a broad swath of industries.
“Respondents in every sector are forecasting increased mergers and acquisitions for 2011,” Matthew Toole, Thomson Reuters’ director of deals intelligence, said in an interview. “Capital markets activity will also continue to be robust, with increased corporate bond issuance and syndicated lending, driven by refinancing activity.”
The numbers tell the story.
The totals are far from levels before the recession, when leveraged buyouts frequently fetched multiples of 15 times earnings before interest, tax, depreciation and amortization, but the appetite for deals is gaining momentum despite lingering concerns in the credit markets.
After hitting a recent low in 2009, with $1.98 trillion in deals, the volume of mergers and acquisitions is expected to rise 12.6 percent this year, to $2.23 trillion, and pick up speed in 2011, according to the report.
On the equity capital markets side, activity is forecast to rise 21 percent next year, to $920 million, while corporate bond issuance should gain 14 percent, to $1.28 trillion.
The report also predicted that two sectors would shine in 2011 for deals: real estate and financial firms. After being pummeled by the credit crisis, many companies from these industries will need to restructure their businesses, pursue consolidation, divest assets or simply play catch-up.
“Financials seem to be the most bullish on a percentage basis,” Mr. Toole said. “This year we saw Goldman Sachs divesting its prop trading desk. … Now we’ll see it on a fuller scale.”
Mr. Toole added that investors should also expect decent deal volume in the health care sector, where competition is driving mergers and acquisitions.
Monday, October 25, 2010
Merger and acquisition activity stirs among Northeast Ohio companies
By DAN SHINGLER, Crains's Cleveland Business, 4:30 am, October 25, 2010
A look around Northeast Ohio's industrial landscape makes one thing quickly apparent: It's a great time to sell a company. And if local investment bankers, private equity managers and manufacturers themselves are any indication, the pace of mergers and acquisitions is only going to continue, if not accelerate, at least through the end of this year. Driving the deals is a combination of coming tax changes, newly available cash, rising company valuations and a group of sellers that's been kept out of the market for two years. “There are some really fine companies out there for sale,” said investment banker Ralph Della Ratta, managing director of Western Reserve Partners in Cleveland. A few of them already have been bought. Fairmount Minerals of Chardon is cited by some in the M&A arena as the first large local company to take advantage of the new environment. In August, its owners sold a controlling stake to a New York private equity firm, American Securities Capital Partners. The sum was not disclosed, but the deal involved at least $775 million in debt that observers said probably could not have been raised in 2009. Since then, the deals have come with increasing frequency and, as was the case with Fairmount, they've involved big names in the region's industrial economy. Solon-based Keithley Instruments, which employs 550, announced Sept. 29 that Danaher Corp. was buying the maker of test and measurement instruments for $300 million. Cleveland-based Hawk Corp. announced Oct. 15 that Carlisle Cos. planned to purchase the maker of friction products for brakes and clutches for $413 million. And just last week, Hexpol AB of Sweden said it would buy Solon-based Excel Polymers for $212.5 million. Proving their mettle
These companies might be attractive to buyers not in spite of the recession, but because of it. Any company doing well and earning a decent profit today has been stress-tested, said Hawk president Chris DiSantis, and that's an attractive quality to potential buyers. “Look at Hawk,” he said. “It doesn't get much worse for us than 2009.” In 2009, Hawk's revenues were down 35% from 2008, Mr. DeSantis said, but it still managed a profit before rebounding this year. Aside from the large companies being bought here, other local entities are involved in acquisitions, though the deals they're cutting are often in far-flung lands and do not garner much local attention. Private equity firms such as Linsalata Capital Partners in Mayfield Heights and Riverside Co. in Cleveland busily have added companies to their portfolios. Meanwhile, manufacturers such as specialty chemical producer Omnova Solutions in Fairlawn and Akron-based plastics resins supplier A. Schulman Inc. have made strategic acquisitions of other companies in their industries to expand their offerings and markets. As for when the blizzard of activity will end, there's some disagreement. But most think the pace will keep up through the end of this year and some think it will continue even thereafter. “I think you'll see more activity in 2011 than you are seeing even now in 2010,” said Steve Rosen, co-chief executive officer of Resilience Capital Partners in Beachwood. Confluence of influences
There are several factors making the deal flurry possible. For one, companies are profitable again after the downturn of 2008-2009. The rebound in their bottom lines means when companies are priced for sale, generally using some multiple of their earnings, the price once again is high enough that sellers are interested. Also, sellers are trying to avoid an increase in the federal capital gains tax rate, set to rise next year to 20% from 15% and widely expected to increase down the line. And then there's the impact of private equity firms, such as Mr. Rosen's Resilience Capital. Typically, these firms raise money from investors with a plan to invest the money by buying private companies, holding and improving them for five to seven years, and then selling them at a profit. During the financial crisis and recession, those sales could not be made, even though the investments had matured. So private equity firms have a pent-up need to divest some of their holdings, Mr. Rosen said. Finally, would-be buyers again are able to buy. Funds and financial buyers have access to credit again and many companies that survived the downturn amassed large war chests of cash in the process. “What you've got going on in the market right now is a combination of higher supply and higher demand,” Mr. DiSantis said. A rush to year end
It's all keeping Western Reserve Partners' Mr. Della Ratta busy. “We're involved in 22 deals right now, but not all of them are in Ohio,” he said. “I think we've got two or three more that we're about to sign up.” Mr. Della Ratta said he thinks local companies are the buyer in deals as often as they are the seller, and that international deals and strategic acquisitions of similar companies are the prevailing trends among company mergers. Among sellers, private equity firms are the most active right now, he said. That jibes with what Mr. Rosen said he's experiencing. “We're in the process of selling three companies now,” Mr. Rosen said during a telephone interview from the airport last Tuesday, Oct. 19, before he left for his next deal. But some think the spate of sales will last only through the end of this year, before tapering off or even declining in 2011. Sellers know the capital gains tax is going to increase on Jan. 1, which could have the same accelerating effect on corporate acquisitions that the expiration of the homebuyers tax credit had last spring on residential real estate sales, predicts Eric Bacon, senior managing director of Linsalata Capital. Deal flow won't die, but ...
Mr. Bacon declined comment on a recent Reuters report that Linsalata is preparing to sell Transtar Industries, a distributor of transmission parts based in Walton Hills. Reuters said Transtar is on the block for about $700 million. Generally, though, Mr. Bacon said sellers are rushing to get their deals done before the end of this year and, after that, there will not be as much urgency to sell. “I'm working on some deals now and they were saying, "If you want to be a player, you have to close by year end,'” Mr. Bacon said. Mr. Bacon said his firm's deal flow picked up in July and August and since has slowed a bit. He's one who thinks the wheeling and dealing will slow soon, but not come to a virtual stop as it did during the financial crisis and recession. Deal flow, he said, is significantly greater than it has been in the last two years. That's a trend Mr. Bacon said will continue through 2011, even if the pace does slow from its current rapidity. Mr. DiSantis agrees, saying, “I wouldn't be surprised to see a weak January and February in the deal market. Anyone who could compress their schedule pulled everything they could into December.”
A look around Northeast Ohio's industrial landscape makes one thing quickly apparent: It's a great time to sell a company. And if local investment bankers, private equity managers and manufacturers themselves are any indication, the pace of mergers and acquisitions is only going to continue, if not accelerate, at least through the end of this year. Driving the deals is a combination of coming tax changes, newly available cash, rising company valuations and a group of sellers that's been kept out of the market for two years. “There are some really fine companies out there for sale,” said investment banker Ralph Della Ratta, managing director of Western Reserve Partners in Cleveland. A few of them already have been bought. Fairmount Minerals of Chardon is cited by some in the M&A arena as the first large local company to take advantage of the new environment. In August, its owners sold a controlling stake to a New York private equity firm, American Securities Capital Partners. The sum was not disclosed, but the deal involved at least $775 million in debt that observers said probably could not have been raised in 2009. Since then, the deals have come with increasing frequency and, as was the case with Fairmount, they've involved big names in the region's industrial economy. Solon-based Keithley Instruments, which employs 550, announced Sept. 29 that Danaher Corp. was buying the maker of test and measurement instruments for $300 million. Cleveland-based Hawk Corp. announced Oct. 15 that Carlisle Cos. planned to purchase the maker of friction products for brakes and clutches for $413 million. And just last week, Hexpol AB of Sweden said it would buy Solon-based Excel Polymers for $212.5 million. Proving their mettle
These companies might be attractive to buyers not in spite of the recession, but because of it. Any company doing well and earning a decent profit today has been stress-tested, said Hawk president Chris DiSantis, and that's an attractive quality to potential buyers. “Look at Hawk,” he said. “It doesn't get much worse for us than 2009.” In 2009, Hawk's revenues were down 35% from 2008, Mr. DeSantis said, but it still managed a profit before rebounding this year. Aside from the large companies being bought here, other local entities are involved in acquisitions, though the deals they're cutting are often in far-flung lands and do not garner much local attention. Private equity firms such as Linsalata Capital Partners in Mayfield Heights and Riverside Co. in Cleveland busily have added companies to their portfolios. Meanwhile, manufacturers such as specialty chemical producer Omnova Solutions in Fairlawn and Akron-based plastics resins supplier A. Schulman Inc. have made strategic acquisitions of other companies in their industries to expand their offerings and markets. As for when the blizzard of activity will end, there's some disagreement. But most think the pace will keep up through the end of this year and some think it will continue even thereafter. “I think you'll see more activity in 2011 than you are seeing even now in 2010,” said Steve Rosen, co-chief executive officer of Resilience Capital Partners in Beachwood. Confluence of influences
There are several factors making the deal flurry possible. For one, companies are profitable again after the downturn of 2008-2009. The rebound in their bottom lines means when companies are priced for sale, generally using some multiple of their earnings, the price once again is high enough that sellers are interested. Also, sellers are trying to avoid an increase in the federal capital gains tax rate, set to rise next year to 20% from 15% and widely expected to increase down the line. And then there's the impact of private equity firms, such as Mr. Rosen's Resilience Capital. Typically, these firms raise money from investors with a plan to invest the money by buying private companies, holding and improving them for five to seven years, and then selling them at a profit. During the financial crisis and recession, those sales could not be made, even though the investments had matured. So private equity firms have a pent-up need to divest some of their holdings, Mr. Rosen said. Finally, would-be buyers again are able to buy. Funds and financial buyers have access to credit again and many companies that survived the downturn amassed large war chests of cash in the process. “What you've got going on in the market right now is a combination of higher supply and higher demand,” Mr. DiSantis said. A rush to year end
It's all keeping Western Reserve Partners' Mr. Della Ratta busy. “We're involved in 22 deals right now, but not all of them are in Ohio,” he said. “I think we've got two or three more that we're about to sign up.” Mr. Della Ratta said he thinks local companies are the buyer in deals as often as they are the seller, and that international deals and strategic acquisitions of similar companies are the prevailing trends among company mergers. Among sellers, private equity firms are the most active right now, he said. That jibes with what Mr. Rosen said he's experiencing. “We're in the process of selling three companies now,” Mr. Rosen said during a telephone interview from the airport last Tuesday, Oct. 19, before he left for his next deal. But some think the spate of sales will last only through the end of this year, before tapering off or even declining in 2011. Sellers know the capital gains tax is going to increase on Jan. 1, which could have the same accelerating effect on corporate acquisitions that the expiration of the homebuyers tax credit had last spring on residential real estate sales, predicts Eric Bacon, senior managing director of Linsalata Capital. Deal flow won't die, but ...
Mr. Bacon declined comment on a recent Reuters report that Linsalata is preparing to sell Transtar Industries, a distributor of transmission parts based in Walton Hills. Reuters said Transtar is on the block for about $700 million. Generally, though, Mr. Bacon said sellers are rushing to get their deals done before the end of this year and, after that, there will not be as much urgency to sell. “I'm working on some deals now and they were saying, "If you want to be a player, you have to close by year end,'” Mr. Bacon said. Mr. Bacon said his firm's deal flow picked up in July and August and since has slowed a bit. He's one who thinks the wheeling and dealing will slow soon, but not come to a virtual stop as it did during the financial crisis and recession. Deal flow, he said, is significantly greater than it has been in the last two years. That's a trend Mr. Bacon said will continue through 2011, even if the pace does slow from its current rapidity. Mr. DiSantis agrees, saying, “I wouldn't be surprised to see a weak January and February in the deal market. Anyone who could compress their schedule pulled everything they could into December.”
Friday, October 22, 2010
The Buyout Gospel According to Rubenstein
Tom Fairless, of Financial News, reports:
David Rubenstein, co-founder and traveling salesman for Carlyle Group, is fond of firing off lists of emerging trends at industry conferences. His latest predictions were made at a speech at the SuperReturn Middle East conference in Abu Dhabi this week.
1) The private-equity industry is shrinking. Deal and fund sizes will be smaller, leverage will remain below its peak and there will be fewer club deals. Large investors will give money to fewer firms. The jury is still out on whether the megadeals and funds from the boom years will yield strong returns.
2) But investor interest is returning. They have concluded that private equity withstood the downturn better than almost any asset class, partly because of its illiquidity, which protected investors from panic sales.
3) Return expectations have fallen. Investors have become more realistic.
4) Investors also have more clout and will demand and receive greater transparency from buyout firms and a better alignment of interests, particularly on management fees. Guidelines issued by the Institutional Limited Partners Association, a trade body for investors in private equity, will have a considerable impact.
5) Big investors will demand preferential treatment. They will seek lower fees and higher hurdle rates.
6) Governments want to get more involved. They will seek to protect stakeholders with new regulations such as the US Volcker Rule, which will deter big banks from sponsoring private equity funds.
7) The industry has gone mainstream. Buyout firms and their investors have deepened relations with government, media, consumer and environmental groups, rather than focusing exclusively on returns.
8) Brand value is increasing. Firms will start to advertise to build their brand names and aid fund-raising.
9) Global reach is increasingly important….
10) …particularly exposure to emerging markets. China is in a league of its own among emerging markets and will attract enormous amount of private-equity capital, while India and Brazil are not far behind. The Middle East and Africa will become increasingly attractive.
David Rubenstein, co-founder and traveling salesman for Carlyle Group, is fond of firing off lists of emerging trends at industry conferences. His latest predictions were made at a speech at the SuperReturn Middle East conference in Abu Dhabi this week.
1) The private-equity industry is shrinking. Deal and fund sizes will be smaller, leverage will remain below its peak and there will be fewer club deals. Large investors will give money to fewer firms. The jury is still out on whether the megadeals and funds from the boom years will yield strong returns.
2) But investor interest is returning. They have concluded that private equity withstood the downturn better than almost any asset class, partly because of its illiquidity, which protected investors from panic sales.
3) Return expectations have fallen. Investors have become more realistic.
4) Investors also have more clout and will demand and receive greater transparency from buyout firms and a better alignment of interests, particularly on management fees. Guidelines issued by the Institutional Limited Partners Association, a trade body for investors in private equity, will have a considerable impact.
5) Big investors will demand preferential treatment. They will seek lower fees and higher hurdle rates.
6) Governments want to get more involved. They will seek to protect stakeholders with new regulations such as the US Volcker Rule, which will deter big banks from sponsoring private equity funds.
7) The industry has gone mainstream. Buyout firms and their investors have deepened relations with government, media, consumer and environmental groups, rather than focusing exclusively on returns.
8) Brand value is increasing. Firms will start to advertise to build their brand names and aid fund-raising.
9) Global reach is increasingly important….
10) …particularly exposure to emerging markets. China is in a league of its own among emerging markets and will attract enormous amount of private-equity capital, while India and Brazil are not far behind. The Middle East and Africa will become increasingly attractive.
Megadeals Go Missing From M&A Rebound as Companies Avoid Risk
By Alex Sherman and Zachary R. Mider -
Oct 22, 2010 12:01 AM ET
Bloomberg.com
This year’s rebound in mergers and acquisitions has one conspicuously large absence: the megadeal.
Announced takeovers of more than $25 billion are set to make up the smallest percentage of total deal volume in any year since 2002, according to data compiled by Bloomberg. BHP Billiton Ltd.’s offer for Potash Corp. of Saskatchewan Inc. is the only bid this year valued at more than $30 billion, and there have been only two others valued at more than $25 billion, including net debt.
Companies are spending stockpiled cash on smaller competitors that complement their business rather than pursuing transformational takeovers. While 73 percent of transactions this year have been less than $5 billion, the purchases have put dealmaking on pace to surpass last year’s $1.78 trillion in volume and may portend the return of more sizeable acquisitions.
“The drop-off in the very large transactions is masking a significant pickup in $1 billion to $5 billion deals,” said Gary Posternack, head of M&A for the Americas at Barclays Plc, in an interview. “Companies are looking at transactions that are lower risk, closer to the core business of the acquirer, and perceived as being synergistic.”
The biggest deals so far this year account for just 5.8 percent of total volume, while acquisitions from $1 billion to $5 billion have risen to 34 percent, the highest in at least a decade, according to Bloomberg data. Transactions less than $1 billion account for 39 percent of the total, a six-year high, the data show.
Cash Available
Many conditions for a comeback in bigger deals are in place. The 1,000 largest non-financial companies have almost $3 trillion on their balance sheets, and financing rates are near record lows. The Federal Reserve’s October Beige Book, released Oct. 20, noted that M&A lending picked up in some areas.
There is pent-up demand for smaller deals even if banks are unwilling to commit tens of billions of dollars in financing, according to Hiter Harris, managing director and co-founder of Harris Williams Co. in Richmond, Virginia, whose firm specializes in advising on transactions valued at less than $1 billion.
“The middle-market deal flow is a six- to nine-month leading indicator for the rest of the market and the economy,” said Harris, who expects more deals will top $25 billion in 2011.
Banks are willing to lend to creditworthy buyers, as evidenced by the $45 billion of loans Melbourne-based BHP Billiton obtained for its Potash bid. Potash rejected the $40 billion offer, excluding debt, as too low.
‘Story of Ego’
Other potential targets may also be balking at offers because they anticipate their valuations will rise, according to Sachin Shah, a special situations and merger arbitrage strategist at Capstone Global Markets LLC in New York.
“This is a story of ego,” said Shah. “Boards are saying, ’I’m a $25 billion company, I’m not the prey, I’m a survivor, I’m the predator.’”
Buyers don’t appear to be looking for transformational opportunities, according to Richard Hurowitz, chairman and chief executive officer at Octavian Advisors LP, who invests in risk arbitrage. Instead, they are actively seeking strategic deals with more “reasonable” valuations, he said.
International Business Machines Corp.’s pending takeover of Netezza Corp. for $1.67 billion and Unilever’s agreement to buy Alberto-Culver Co. for $3.7 billion are two examples of same- industry, all-cash deals announced since the beginning of September.
Biggest Deals
While deals between $5 billion and $25 billion have increased from last year, both in total number and in overall value, they are still below levels from 2005 to 2008, data show.
None of the three biggest deals this year have involved a U.S. company. The country’s unemployment rate is hovering at 9.6 percent and consumer confidence unexpectedly fell in October.
Aside from BHP, the other announced offers topping $25 billion this year are GDF Suez SA’s $25.8 billion bid for London-based International Power Plc and America Movil SAB’s $25.7 billion proposed purchase of Carso Global Telecom SAB. Both of those companies are controlled by billionaire Carlos Slim.
The compiled data include net debt and exclude terminated deals, such as this year’s $35.5 billion bid by London-based Prudential Plc to buy Hong Kong-based AIA Group Ltd.
A potential change in capital gains tax rates has also fueled smaller acquisitions, said Harris. President Barack Obama has proposed raising long-term capital-gain rates to 20 percent from 15 percent for individuals who earn more than $200,000 and couples that earn more than $250,000.
“The possible change in rates is a significant event for middle-market companies, but if you’re a $25 billion company, you’re probably not as focused on the changes,” Harris said.
To contact the reporter on this story: Alex Sherman in New York at asherman6@bloomberg.net; Zachary R. Mider in New York at zmider1@bloomberg.net.
Oct 22, 2010 12:01 AM ET
Bloomberg.com
This year’s rebound in mergers and acquisitions has one conspicuously large absence: the megadeal.
Announced takeovers of more than $25 billion are set to make up the smallest percentage of total deal volume in any year since 2002, according to data compiled by Bloomberg. BHP Billiton Ltd.’s offer for Potash Corp. of Saskatchewan Inc. is the only bid this year valued at more than $30 billion, and there have been only two others valued at more than $25 billion, including net debt.
Companies are spending stockpiled cash on smaller competitors that complement their business rather than pursuing transformational takeovers. While 73 percent of transactions this year have been less than $5 billion, the purchases have put dealmaking on pace to surpass last year’s $1.78 trillion in volume and may portend the return of more sizeable acquisitions.
“The drop-off in the very large transactions is masking a significant pickup in $1 billion to $5 billion deals,” said Gary Posternack, head of M&A for the Americas at Barclays Plc, in an interview. “Companies are looking at transactions that are lower risk, closer to the core business of the acquirer, and perceived as being synergistic.”
The biggest deals so far this year account for just 5.8 percent of total volume, while acquisitions from $1 billion to $5 billion have risen to 34 percent, the highest in at least a decade, according to Bloomberg data. Transactions less than $1 billion account for 39 percent of the total, a six-year high, the data show.
Cash Available
Many conditions for a comeback in bigger deals are in place. The 1,000 largest non-financial companies have almost $3 trillion on their balance sheets, and financing rates are near record lows. The Federal Reserve’s October Beige Book, released Oct. 20, noted that M&A lending picked up in some areas.
There is pent-up demand for smaller deals even if banks are unwilling to commit tens of billions of dollars in financing, according to Hiter Harris, managing director and co-founder of Harris Williams Co. in Richmond, Virginia, whose firm specializes in advising on transactions valued at less than $1 billion.
“The middle-market deal flow is a six- to nine-month leading indicator for the rest of the market and the economy,” said Harris, who expects more deals will top $25 billion in 2011.
Banks are willing to lend to creditworthy buyers, as evidenced by the $45 billion of loans Melbourne-based BHP Billiton obtained for its Potash bid. Potash rejected the $40 billion offer, excluding debt, as too low.
‘Story of Ego’
Other potential targets may also be balking at offers because they anticipate their valuations will rise, according to Sachin Shah, a special situations and merger arbitrage strategist at Capstone Global Markets LLC in New York.
“This is a story of ego,” said Shah. “Boards are saying, ’I’m a $25 billion company, I’m not the prey, I’m a survivor, I’m the predator.’”
Buyers don’t appear to be looking for transformational opportunities, according to Richard Hurowitz, chairman and chief executive officer at Octavian Advisors LP, who invests in risk arbitrage. Instead, they are actively seeking strategic deals with more “reasonable” valuations, he said.
International Business Machines Corp.’s pending takeover of Netezza Corp. for $1.67 billion and Unilever’s agreement to buy Alberto-Culver Co. for $3.7 billion are two examples of same- industry, all-cash deals announced since the beginning of September.
Biggest Deals
While deals between $5 billion and $25 billion have increased from last year, both in total number and in overall value, they are still below levels from 2005 to 2008, data show.
None of the three biggest deals this year have involved a U.S. company. The country’s unemployment rate is hovering at 9.6 percent and consumer confidence unexpectedly fell in October.
Aside from BHP, the other announced offers topping $25 billion this year are GDF Suez SA’s $25.8 billion bid for London-based International Power Plc and America Movil SAB’s $25.7 billion proposed purchase of Carso Global Telecom SAB. Both of those companies are controlled by billionaire Carlos Slim.
The compiled data include net debt and exclude terminated deals, such as this year’s $35.5 billion bid by London-based Prudential Plc to buy Hong Kong-based AIA Group Ltd.
A potential change in capital gains tax rates has also fueled smaller acquisitions, said Harris. President Barack Obama has proposed raising long-term capital-gain rates to 20 percent from 15 percent for individuals who earn more than $200,000 and couples that earn more than $250,000.
“The possible change in rates is a significant event for middle-market companies, but if you’re a $25 billion company, you’re probably not as focused on the changes,” Harris said.
To contact the reporter on this story: Alex Sherman in New York at asherman6@bloomberg.net; Zachary R. Mider in New York at zmider1@bloomberg.net.
Tuesday, October 19, 2010
What Recent Deals May Say About M.&A.’s Future
NYT DealBook, October 18, 2010, The Deal Professor, Steven M. Davidoff:
Where is the market for mergers and acquisitions going? After a summer of prominent deal announcements and increased M.&A. activity, investment bankers are speculating that the market will grow 15 percent to 30 percent in the next year. Bankers tend to talk their book, but this time it looks like the market is likely to support a modest upswing, albeit one not as big as the bankers hope for.
While many chief executives continue to remain wary of M.&A. transactions and the risk they entail, credit today is relatively easy and cheap, providing real incentives to make asset purchases. But whether or not the upturn is coming, the more interesting question is what this market will look like over the next year.
Go to the Deal Professor from DealBook »
Where is the market for mergers and acquisitions going? After a summer of prominent deal announcements and increased M.&A. activity, investment bankers are speculating that the market will grow 15 percent to 30 percent in the next year. Bankers tend to talk their book, but this time it looks like the market is likely to support a modest upswing, albeit one not as big as the bankers hope for.
While many chief executives continue to remain wary of M.&A. transactions and the risk they entail, credit today is relatively easy and cheap, providing real incentives to make asset purchases. But whether or not the upturn is coming, the more interesting question is what this market will look like over the next year.
Go to the Deal Professor from DealBook »
Monday, October 18, 2010
Headaches Can Crop Up After Private Deals Close, M&A Study Finds
Amy Miller, The Recorder, 10-18-2010:
It's not easy to sell a privately held tech company these days. But the real headaches sometimes begin after the deal closes, according to a new study by Shareholder Representative Service, which manages the post-closing process in M&A transactions for its clients.
The post-closing period can be "long, risky, and complex," the study found. Claims related to deals can be filed over an extended period of time, even after closing. Meanwhile, shareholders are increasingly demanding that certain conditions, such as performance goals, be met before the privately held company can cash out.
The study looked at more than 100 transactions that Shareholder Representative Services handled recently in which the terms were not publicly reported. The value of the deals, which involved primarily software, electronics, and telecommunications companies, ranged from about $25 million to $200 million.
According to the study, nearly two thirds of the deals allowed for possible changes to the final purchase price after closing.
Two thirds of the deals also set aside a portion of the merger consideration in escrow for more than a year, and more than half of the transactions had escrows that exceeded 10 percent of the deal value.
Even when the escrow period closes, consideration is still at risk. About 95 percent of the deals also had "carve outs," or exceptions, built into their terms that allowed claims against the transaction to be brought well after the deal closed.
And a quarter of the deals had "earnout," or performance hurdles, attached to them before shareholders could fully reap the full value of a sale. Such agreements are most common in life science or pharmaceutical deals, said SRS managing director Paul Koenig.
For example, the full value of deal to buy a pharmaceutical company might not be realized unless a particular drug gets approved by the Food and Drug Administration.
"Sometimes those are extremely complicated," Koenig said.
But in general, buyers across all industries have more leverage than in the past because the IPO window has closed for a lot of start-up companies. In the Silicon Valley tech world, it means that big companies like Google, Hewlett-Packard and Oracle can dictate the terms of a deal, and the target companies have little choice but to accept them.
Even if the economy improves and it becomes easier for start ups to go public, the trend isn't likely to change, Koenig said.
"My guess is these complicated structures are here to stay," he said. "Deals are going to remain more complicated than they were 10 to 15 years ago."
It's not easy to sell a privately held tech company these days. But the real headaches sometimes begin after the deal closes, according to a new study by Shareholder Representative Service, which manages the post-closing process in M&A transactions for its clients.
The post-closing period can be "long, risky, and complex," the study found. Claims related to deals can be filed over an extended period of time, even after closing. Meanwhile, shareholders are increasingly demanding that certain conditions, such as performance goals, be met before the privately held company can cash out.
The study looked at more than 100 transactions that Shareholder Representative Services handled recently in which the terms were not publicly reported. The value of the deals, which involved primarily software, electronics, and telecommunications companies, ranged from about $25 million to $200 million.
According to the study, nearly two thirds of the deals allowed for possible changes to the final purchase price after closing.
Two thirds of the deals also set aside a portion of the merger consideration in escrow for more than a year, and more than half of the transactions had escrows that exceeded 10 percent of the deal value.
Even when the escrow period closes, consideration is still at risk. About 95 percent of the deals also had "carve outs," or exceptions, built into their terms that allowed claims against the transaction to be brought well after the deal closed.
And a quarter of the deals had "earnout," or performance hurdles, attached to them before shareholders could fully reap the full value of a sale. Such agreements are most common in life science or pharmaceutical deals, said SRS managing director Paul Koenig.
For example, the full value of deal to buy a pharmaceutical company might not be realized unless a particular drug gets approved by the Food and Drug Administration.
"Sometimes those are extremely complicated," Koenig said.
But in general, buyers across all industries have more leverage than in the past because the IPO window has closed for a lot of start-up companies. In the Silicon Valley tech world, it means that big companies like Google, Hewlett-Packard and Oracle can dictate the terms of a deal, and the target companies have little choice but to accept them.
Even if the economy improves and it becomes easier for start ups to go public, the trend isn't likely to change, Koenig said.
"My guess is these complicated structures are here to stay," he said. "Deals are going to remain more complicated than they were 10 to 15 years ago."
Friday, October 15, 2010
V.C. Funding Drops in 3Q, Mainly in Clean-Tech
October 15, 2010, 7:15 am — Updated: 7:15 am -->
Venture capitalists poured less money into U.S. start-ups in the third quarter and split this among more companies, signaling that investors are trying to be more economical with their funds, Reuters reported.
According to a study set to be released Friday, start-up investments declined 7 percent to $4.8 billion in the July-September period, compared with $5.2 billion invested during the same three-month period in 2009. A total of 780 start-ups received funding during the quarter — 9 percent more than the 716 companies that took slices of the investment pie last year.
The study, which was conducted by PriceWaterhouseCoopers and the National Venture Capital Association based on data from Thomson Reuters, said that much of the decline stemmed from a drop in large investments in clean technology. Funding in clean-tech start-ups, which include alternative energy, recycling, conservation and power supply companies, has been mercurial lately. It fell every quarter last year compared with the previous year, but has been climbing this year — until the third quarter.
Despite the third-quarter funding drop, though, funding for the full year still looks to be higher than it was in 2009. So far this year, venture capitalists have invested $16.7 billion in 2,497 start-ups; in all of 2009, $18.3 billion was funneled into 2,916 start-ups.
Go to Article from The Associated Press via The New York Times »
Venture capitalists poured less money into U.S. start-ups in the third quarter and split this among more companies, signaling that investors are trying to be more economical with their funds, Reuters reported.
According to a study set to be released Friday, start-up investments declined 7 percent to $4.8 billion in the July-September period, compared with $5.2 billion invested during the same three-month period in 2009. A total of 780 start-ups received funding during the quarter — 9 percent more than the 716 companies that took slices of the investment pie last year.
The study, which was conducted by PriceWaterhouseCoopers and the National Venture Capital Association based on data from Thomson Reuters, said that much of the decline stemmed from a drop in large investments in clean technology. Funding in clean-tech start-ups, which include alternative energy, recycling, conservation and power supply companies, has been mercurial lately. It fell every quarter last year compared with the previous year, but has been climbing this year — until the third quarter.
Despite the third-quarter funding drop, though, funding for the full year still looks to be higher than it was in 2009. So far this year, venture capitalists have invested $16.7 billion in 2,497 start-ups; in all of 2009, $18.3 billion was funneled into 2,916 start-ups.
Go to Article from The Associated Press via The New York Times »
Tuesday, October 12, 2010
Is Deal Making Back in a Groove?
WSJ Deal Journal, Oct. 12, 2010:
By Shira Ovide
That at least is one takeaway from the prognosticators at Standard & Poor’s.
S&P Valuation and Risk Strategies said since 1998, fourth-quarter deal volume has risen an average of nearly 15% from the prior three months. Capital IQ reported $185 billion of deals announced in the third quarter. S&P said that assuming the average historical trend for October to December, the deal volume for the fourth quarter could “reasonably exceed” $211 billion.
Already the fourth quarter has seen a string of solid, if not blockbuster, deals. GE made a $3 billion bid for energy infrastructure firm Dresser, Gymboree is slated to be bought for $1.8 billion by Bain Capital, and today Pfizer announced a $3.6 billion offer, or $14.25 a share, for King Pharmaceuticals.
At $211 billion, the fourth quarter would be the most active period for deal making this year. Of course, that could be said to be damning with faint praise, as that would be down about 11% from the fourth quarter of 2009 and well below the $447 billion of deals announced in the fourth quarter of 2006, the year with the most active fourth quarter for deals, according to S&P’s analysis of Capital IQ data.
To be sure, past performance isn’t predictive of future results. “A shock to the system could put this forecast on hold,” S&P director Richard Peterson cautioned. But please forgive battered investment houses for hoping S&P is right.
By Shira Ovide
That at least is one takeaway from the prognosticators at Standard & Poor’s.
S&P Valuation and Risk Strategies said since 1998, fourth-quarter deal volume has risen an average of nearly 15% from the prior three months. Capital IQ reported $185 billion of deals announced in the third quarter. S&P said that assuming the average historical trend for October to December, the deal volume for the fourth quarter could “reasonably exceed” $211 billion.
Already the fourth quarter has seen a string of solid, if not blockbuster, deals. GE made a $3 billion bid for energy infrastructure firm Dresser, Gymboree is slated to be bought for $1.8 billion by Bain Capital, and today Pfizer announced a $3.6 billion offer, or $14.25 a share, for King Pharmaceuticals.
At $211 billion, the fourth quarter would be the most active period for deal making this year. Of course, that could be said to be damning with faint praise, as that would be down about 11% from the fourth quarter of 2009 and well below the $447 billion of deals announced in the fourth quarter of 2006, the year with the most active fourth quarter for deals, according to S&P’s analysis of Capital IQ data.
To be sure, past performance isn’t predictive of future results. “A shock to the system could put this forecast on hold,” S&P director Richard Peterson cautioned. But please forgive battered investment houses for hoping S&P is right.
Thursday, September 30, 2010
Deal Makers Cautious
September 30, 2010, 12:41 pm — Updated: 1:16 pm -->
Deal Makers Cautious Despite Uptick in M.&A.
A pickup in mergers and acquisitions over the last two months has the bulls on Wall Street thinking that the deal market is back in full force. But many senior deal makers remain cautious about the increase in M.&A. activity, given the continued uncertainty in the direction of the economy.
“Basically, M.&A. is a function of a market economy, and there are so many factors that come into play that there is no way to predict what will happen in the future,” Martin Lipton, one of the founding partners of the law firm Wachtell Lipton Rosen & Katz told DealBook at the Bloomberg Dealmakers Summit on Thursday in New York. “Yes, there has been a significant increase in activity lately — sometimes that portends an increase in deals, sometimes it doesn’t.”
M.&A. activity did pump up in August, which is normally one of the slowest months for deals of the year. That enthusiasm carried over into September with a number a major transactions announced, including Southwest Airlines’ announcement on Monday that it would acquire AirTran, a rival budget airline, for nearly $1.4 billion. Global M.&A. volume totaled nearly $730 billion in the the third quarter, up 43 percent from a year earlier, according to data from Dealogic.
But this past performance is not impressing deal makers. While they are seeing more deals in the pipeline these days, they are only seeing the strongest and largest companies emerge with completed transactions.
“The system is in a state of slow recovery,” Roger C. Altman, the founder and chairman of Evercore Partners, said at the conference. “Parts of it are functioning very well in relation to where it was and other parts of it, like middle-market lending, are functioning very poorly and are a very, very long way from recovery.
“If you look at the amount of commercial investment loans outstanding, they have been relentlessly declining for almost two years, and you know you cannot have a true healthy economic recovery with bank credit lending like that.”
But Timothy Ingrassia, the head of mergers and acquisitions for Goldman Sachs in the Americas, believes that while financing may still be an obstacle in doing some deals, the main obstacle he sees has shifted from debt to the equity side of the transaction.
“If you think about a $10 billion deal that requires $4 billion of equity, you are talking about multiple private equity firms that have to get together,” Mr. Ingrassia said at the conference. “Right now, that dynamic, creating consortia and having buyers back in unity to get something done, may be the most difficult piece of the deal, while six months ago I would absolutely say that financing was the most difficult part of the deal.”
Despite the difficulties in arranging club deals, Blair Effron, a partner at Centerview Partners, believes strongly that private equity will probably be the biggest part of the deal market in the next year. Many private equity firms will need to exit their investments and so that could mean a large uptick in deal activity there.
Regulatory changes that would increase the amount of taxes that private equity firms would have to pay to exit certain deals is likely to determine whether some new deals get done. But there seems to be only modest concern from deal makers, or their clients, about the impact that the sweeping new financial regulatory law will on their business.
“I find that general legislation like Sarbanes-Oxely and Dodd-Frank does not that much of an impact,” Mr. Lipton told DealBook. “Dodd-Frank has more of an impact on financial transactions, but if there is an opportune transaction, Dodd-Frank will not interfere with them going forward.”
– Cyrus Sanati
Copyright 2010 The New York Times Company
Deal Makers Cautious Despite Uptick in M.&A.
A pickup in mergers and acquisitions over the last two months has the bulls on Wall Street thinking that the deal market is back in full force. But many senior deal makers remain cautious about the increase in M.&A. activity, given the continued uncertainty in the direction of the economy.
“Basically, M.&A. is a function of a market economy, and there are so many factors that come into play that there is no way to predict what will happen in the future,” Martin Lipton, one of the founding partners of the law firm Wachtell Lipton Rosen & Katz told DealBook at the Bloomberg Dealmakers Summit on Thursday in New York. “Yes, there has been a significant increase in activity lately — sometimes that portends an increase in deals, sometimes it doesn’t.”
M.&A. activity did pump up in August, which is normally one of the slowest months for deals of the year. That enthusiasm carried over into September with a number a major transactions announced, including Southwest Airlines’ announcement on Monday that it would acquire AirTran, a rival budget airline, for nearly $1.4 billion. Global M.&A. volume totaled nearly $730 billion in the the third quarter, up 43 percent from a year earlier, according to data from Dealogic.
But this past performance is not impressing deal makers. While they are seeing more deals in the pipeline these days, they are only seeing the strongest and largest companies emerge with completed transactions.
“The system is in a state of slow recovery,” Roger C. Altman, the founder and chairman of Evercore Partners, said at the conference. “Parts of it are functioning very well in relation to where it was and other parts of it, like middle-market lending, are functioning very poorly and are a very, very long way from recovery.
“If you look at the amount of commercial investment loans outstanding, they have been relentlessly declining for almost two years, and you know you cannot have a true healthy economic recovery with bank credit lending like that.”
But Timothy Ingrassia, the head of mergers and acquisitions for Goldman Sachs in the Americas, believes that while financing may still be an obstacle in doing some deals, the main obstacle he sees has shifted from debt to the equity side of the transaction.
“If you think about a $10 billion deal that requires $4 billion of equity, you are talking about multiple private equity firms that have to get together,” Mr. Ingrassia said at the conference. “Right now, that dynamic, creating consortia and having buyers back in unity to get something done, may be the most difficult piece of the deal, while six months ago I would absolutely say that financing was the most difficult part of the deal.”
Despite the difficulties in arranging club deals, Blair Effron, a partner at Centerview Partners, believes strongly that private equity will probably be the biggest part of the deal market in the next year. Many private equity firms will need to exit their investments and so that could mean a large uptick in deal activity there.
Regulatory changes that would increase the amount of taxes that private equity firms would have to pay to exit certain deals is likely to determine whether some new deals get done. But there seems to be only modest concern from deal makers, or their clients, about the impact that the sweeping new financial regulatory law will on their business.
“I find that general legislation like Sarbanes-Oxely and Dodd-Frank does not that much of an impact,” Mr. Lipton told DealBook. “Dodd-Frank has more of an impact on financial transactions, but if there is an opportune transaction, Dodd-Frank will not interfere with them going forward.”
– Cyrus Sanati
Copyright 2010 The New York Times Company
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