NYT DealBook, Friday, April 16, 2010:
Hello from New Orleans, where DealBook has been covering Tulane University's Corporate Law Institute, the annual gathering of top deal-making lawyers. The mood here is markedly more optimistic than last year, as professionals predict deal-making is ready to grow. Go to DealBook's Coverage of Tulane University's 2010 Corporate Law Institute>>
Kicking off the conference, JPMorgan Chase's Douglas Braunstein says that the signs are present for renewed deal-making in 2010. Go to Item from DealBook» Just because calls have grown louder for the government to increase its regulation of companies doesn't mean that it should, a commissioner at the Securities and Exchange Commission said Thursday. Go to Item from DealBook»
A panel on public company mergers at the Corporate Law Institute mixed the serious with the sarcastic, perhaps an inevitable mix when Delaware Chancery Court Vice Chancellor Leo Strine is on hand. Go to Item from DealBook»
Friday, April 16, 2010
Thursday, April 15, 2010
Signs of Confidence Growing in M.&A. Market
NYT DealBook, April 14, 2010:
Corporate executives from around the globe feel more confident about making deals, with many of them planning mergers and acquisitions in the near future, according to a new survey of business confidence by Ernst & Young and the Economist Intelligence Unit.
The Capital Confidence Barometer, a survey of more than 800 professionals worldwide, found that 57 percent of businesses say they are likely or highly likely to acquire a rival in the next 12 months, with 47 percent expecting to reach a deal in the next six months. That compares with six months ago when the biannual survey found that just 33 percent were planning acquisitions over the coming 12 months, with 25 percent expecting deals in the coming six months.
The biannual survey complements another look at mergers and acquisitions released on Wednesday by the Brunswick Group, a corporate communications firm. That survey showed top bankers and lawyers were even more optimistic, with two-thirds saying they thought deal-making activity was on the increase.
The Ernst & Young study also found that confidence in credit conditions was improving, as 62 percent of respondents said they could obtain financing for major capital projects and acquisitions in the next 12 months. Up to now, most deals have been cash-based because of the lack of bank financing.
“Improving market conditions have more companies shopping again and those with capital to deploy are ahead of the game,” Richard Jeanneret, vice chairman of transaction advisory services at Ernst & Young, said in a statement. “There’s a greater focus on growth opportunities and M.&A. is one way to achieve that goal.”
The survey, which was conducted in late March, also found that 76 percent of businesses were now focused on growth, compared with 56 percent six months ago. Those executives in the automotive sector were the most confident of growth, with 81 percent of respondents expecting their businesses to expand — a result that makes sense given the pounding that the auto industry took during the financial crisis.
Meanwhile, executives in the energy and pharmaceuticals sectors said that they were very likely to focus on mergers and acquisitions, as well as divestitures. About 69 percent of oil and gas companies said they were planning to sell a piece of their businesses in the next six months.
But while there was a pickup in sentiment concerning deals, the outlook for the broader economy remained somewhat weak. with just 40 percent of respondents expecting the economic downturn to end within 12 months.
There was a wide dispersion of confidence related to the economy depending on where the respondents were based. The most optimistic countries were Australia at 93 percent, India at 91 percent, Brazil at 83 percent and China at 80 percent.
The Western developed markets were among the least confident of the group, with France at 44 percent, the United States at 56 percent and Britain at 57 percent.
– Cyrus Sanati
Corporate executives from around the globe feel more confident about making deals, with many of them planning mergers and acquisitions in the near future, according to a new survey of business confidence by Ernst & Young and the Economist Intelligence Unit.
The Capital Confidence Barometer, a survey of more than 800 professionals worldwide, found that 57 percent of businesses say they are likely or highly likely to acquire a rival in the next 12 months, with 47 percent expecting to reach a deal in the next six months. That compares with six months ago when the biannual survey found that just 33 percent were planning acquisitions over the coming 12 months, with 25 percent expecting deals in the coming six months.
The biannual survey complements another look at mergers and acquisitions released on Wednesday by the Brunswick Group, a corporate communications firm. That survey showed top bankers and lawyers were even more optimistic, with two-thirds saying they thought deal-making activity was on the increase.
The Ernst & Young study also found that confidence in credit conditions was improving, as 62 percent of respondents said they could obtain financing for major capital projects and acquisitions in the next 12 months. Up to now, most deals have been cash-based because of the lack of bank financing.
“Improving market conditions have more companies shopping again and those with capital to deploy are ahead of the game,” Richard Jeanneret, vice chairman of transaction advisory services at Ernst & Young, said in a statement. “There’s a greater focus on growth opportunities and M.&A. is one way to achieve that goal.”
The survey, which was conducted in late March, also found that 76 percent of businesses were now focused on growth, compared with 56 percent six months ago. Those executives in the automotive sector were the most confident of growth, with 81 percent of respondents expecting their businesses to expand — a result that makes sense given the pounding that the auto industry took during the financial crisis.
Meanwhile, executives in the energy and pharmaceuticals sectors said that they were very likely to focus on mergers and acquisitions, as well as divestitures. About 69 percent of oil and gas companies said they were planning to sell a piece of their businesses in the next six months.
But while there was a pickup in sentiment concerning deals, the outlook for the broader economy remained somewhat weak. with just 40 percent of respondents expecting the economic downturn to end within 12 months.
There was a wide dispersion of confidence related to the economy depending on where the respondents were based. The most optimistic countries were Australia at 93 percent, India at 91 percent, Brazil at 83 percent and China at 80 percent.
The Western developed markets were among the least confident of the group, with France at 44 percent, the United States at 56 percent and Britain at 57 percent.
– Cyrus Sanati
Wednesday, April 14, 2010
Deal Outlook Is Rosy Ahead of Tulane M.&A. Conference
NYT DealBook, April 14, 2010:
Deal-makers are feeling good about their business again ahead of Tulane University Law School’s annual Corporate Law Institute in New Orleans, which begins Thursday. (DealBook will be on the ground to give you an inside look.)
More than two-thirds of top bankers and lawyers who orchestrate mergers and acquisitions believe that deal-making activity will rise again, according to a survey released Wednesday by the Brunswick Group, a corporate communications firm.
That’s a big change from last year’s results, in only 29 percent of respondents forecast signs of recovery within 18 months.
“This year’s results reveal a substantial change in sentiment in the M.&A. world and advisors appear to be quite optimistic that the deal activity we’ve seen in the first quarter of the year will continue and potentially accelerate during the remainder of 2010,” Steven Lipin, a Brunswick senior partner, said in a statement. “While it may be premature to sing Bon Temps Rouler, overall the community is feeling much more positive.”
While the economic recovery has certainly helped propel deal-making — as DealBook noted earlier this month, mergers volumes remain up more than 18 percent from last year — deal-makers said that psychological factors will help greatly. About 36 percent of respondents said that the confidence of chief executives and corporate boards will provide the biggest boost to deal-making, more than healthy credit markets and booming stock prices.
The vast majority of respondents said that domestic mergers will dominate the landscape, and deals involving a mix of cash and stock will be the norm.Brunswick Group’s M.&A. Survey 2010
Deal-makers are feeling good about their business again ahead of Tulane University Law School’s annual Corporate Law Institute in New Orleans, which begins Thursday. (DealBook will be on the ground to give you an inside look.)
More than two-thirds of top bankers and lawyers who orchestrate mergers and acquisitions believe that deal-making activity will rise again, according to a survey released Wednesday by the Brunswick Group, a corporate communications firm.
That’s a big change from last year’s results, in only 29 percent of respondents forecast signs of recovery within 18 months.
“This year’s results reveal a substantial change in sentiment in the M.&A. world and advisors appear to be quite optimistic that the deal activity we’ve seen in the first quarter of the year will continue and potentially accelerate during the remainder of 2010,” Steven Lipin, a Brunswick senior partner, said in a statement. “While it may be premature to sing Bon Temps Rouler, overall the community is feeling much more positive.”
While the economic recovery has certainly helped propel deal-making — as DealBook noted earlier this month, mergers volumes remain up more than 18 percent from last year — deal-makers said that psychological factors will help greatly. About 36 percent of respondents said that the confidence of chief executives and corporate boards will provide the biggest boost to deal-making, more than healthy credit markets and booming stock prices.
The vast majority of respondents said that domestic mergers will dominate the landscape, and deals involving a mix of cash and stock will be the norm.Brunswick Group’s M.&A. Survey 2010
Thursday, April 08, 2010
Financial Deal-Making May Rise in 2010, PwC Says
NYT DealBook, April 8, 2010.
The first instances of consolidation among financial services firms began in earnest during the height of the financial crisis, when Bank of America purchased Merrill Lynch and Barclays Capital acquired the bulk of the failed Lehman Brothers.
More than two years later, financial services firms are still expected to partake in mergers and acquisitions, according to a report released Thursday by PricewaterhouseCoopers.
Bank auctions by the Federal Deposit Insurance Corporation, consolidation among asset management firms and possibly some deals among insurers are all expected to take place over the rest of 2010, the accounting firm said.
Already, two of the biggest deals of the year were in the financial space: the sales of two international units of the American International Group, as the insurer trudges toward recovery after its near-collapse during the financial crisis.
“We believe the current market presents a significant number of potential opportunities in the banking, asset management and insurance sectors for investors that have the liquidity and capital strength to be acquisitive and the infrastructure and capabilities to realize potential synergies,” Gary Tillett, PricewaterhouseCoopers’ financial services leader, transaction services, said in a statement.
The report cites several factors for continued deal-making among financial players. While the economy has recovered, some firms — like banks and property and casualty insurance providers — may continue to struggle with returning to big profits. And asset managers may still face pricing pressures.
Go to PricewaterhouseCoopers Press Release »
Go to PricewaterhouseCoopers Report (PDF) »
The first instances of consolidation among financial services firms began in earnest during the height of the financial crisis, when Bank of America purchased Merrill Lynch and Barclays Capital acquired the bulk of the failed Lehman Brothers.
More than two years later, financial services firms are still expected to partake in mergers and acquisitions, according to a report released Thursday by PricewaterhouseCoopers.
Bank auctions by the Federal Deposit Insurance Corporation, consolidation among asset management firms and possibly some deals among insurers are all expected to take place over the rest of 2010, the accounting firm said.
Already, two of the biggest deals of the year were in the financial space: the sales of two international units of the American International Group, as the insurer trudges toward recovery after its near-collapse during the financial crisis.
“We believe the current market presents a significant number of potential opportunities in the banking, asset management and insurance sectors for investors that have the liquidity and capital strength to be acquisitive and the infrastructure and capabilities to realize potential synergies,” Gary Tillett, PricewaterhouseCoopers’ financial services leader, transaction services, said in a statement.
The report cites several factors for continued deal-making among financial players. While the economy has recovered, some firms — like banks and property and casualty insurance providers — may continue to struggle with returning to big profits. And asset managers may still face pricing pressures.
Go to PricewaterhouseCoopers Press Release »
Go to PricewaterhouseCoopers Report (PDF) »
Monday, April 05, 2010
Tech M.&A. Shows More Signs of Rebounding
NYT DealBook, April 5, 2010:
The number of technology mergers and acquisitions announced in the first quarter of the year rose to its highest level since the financial crisis first gripped the market, according to the 451 Group, a technology investment research firm.. But the aggregate value of the transactions fell from the previous quarter as there were only a handful of big-ticket deals announced.
Nevertheless, many technology companies are still sitting on the sidelines with large cash reserves, so deal activity could increase as the economy improves.
Deal makers were busy in Silicon Valley last quarter, announcing 841 deals, the highest number since the second quarter of 2007, the 451 Group reports. The makeup of deals varied from a bevy of small bolt on acquisitions to some larger deals with big-name players, including CA, Google, I.B.M. and Oracle. They all announced at least three acquisitions in the just-completed quarter, including, I.B.M.’s acquisition of Initiate Systems and CA’s acquisition of Nimsoft.
But while the quarter saw 12 deals that exceeded $1 billion, the majority of deals were smaller eight- or seven-figure deals. In fact, a third of the deals volume announced originated with just one deal, Bharti Airtel $9 billion acquisition of the Zain Group’s mobile phone businesses in Africa, which skews more into the telecommunications sector rather than the pure-play technology space.
Meanwhile, smaller technology companies continued to rack up deals. The quarter saw purchases from SGI, Unica and Nuance Communications. These three companies have a combined market capitalization of $5.2 billion and more than $600 million of cash on hand, so they still have plenty of money to make further deals in the coming quarters.
In addition to acquisitions, there were also a number of money-losing divestitures from companies attempted to raise cash, like the jettisoning of HotJobs and Zimbra by Yahoo. The 451 Groups says those deals probably returned only about 50 cents on the dollar for Yahoo.
One reason for the weakness came from the lack of private equity money invested in technology deals. Private equity firms invested just $6.6 billion in technology in the first quarter, 451 Group tabulated, which was down about a third from the $9.9 billion invested by those firms in the fourth quarter of 2009.
Despite the drop in private equity interest, there were some signs that private equity firms were willing to take more risks in technology as a consortium of companies including Berkshire Partners, Bain Capital and Advent International teamed up last quarter to put forward a combined $1.1 billion for the Irish electronic education company SkillSoft. It was one of the first private equity deals that broke the $1 billion mark in nearly two and a half years, the 451 Group said.
– Cyrus Sanati
Go to Report from the 451 Group »
The number of technology mergers and acquisitions announced in the first quarter of the year rose to its highest level since the financial crisis first gripped the market, according to the 451 Group, a technology investment research firm.. But the aggregate value of the transactions fell from the previous quarter as there were only a handful of big-ticket deals announced.
Nevertheless, many technology companies are still sitting on the sidelines with large cash reserves, so deal activity could increase as the economy improves.
Deal makers were busy in Silicon Valley last quarter, announcing 841 deals, the highest number since the second quarter of 2007, the 451 Group reports. The makeup of deals varied from a bevy of small bolt on acquisitions to some larger deals with big-name players, including CA, Google, I.B.M. and Oracle. They all announced at least three acquisitions in the just-completed quarter, including, I.B.M.’s acquisition of Initiate Systems and CA’s acquisition of Nimsoft.
But while the quarter saw 12 deals that exceeded $1 billion, the majority of deals were smaller eight- or seven-figure deals. In fact, a third of the deals volume announced originated with just one deal, Bharti Airtel $9 billion acquisition of the Zain Group’s mobile phone businesses in Africa, which skews more into the telecommunications sector rather than the pure-play technology space.
Meanwhile, smaller technology companies continued to rack up deals. The quarter saw purchases from SGI, Unica and Nuance Communications. These three companies have a combined market capitalization of $5.2 billion and more than $600 million of cash on hand, so they still have plenty of money to make further deals in the coming quarters.
In addition to acquisitions, there were also a number of money-losing divestitures from companies attempted to raise cash, like the jettisoning of HotJobs and Zimbra by Yahoo. The 451 Groups says those deals probably returned only about 50 cents on the dollar for Yahoo.
One reason for the weakness came from the lack of private equity money invested in technology deals. Private equity firms invested just $6.6 billion in technology in the first quarter, 451 Group tabulated, which was down about a third from the $9.9 billion invested by those firms in the fourth quarter of 2009.
Despite the drop in private equity interest, there were some signs that private equity firms were willing to take more risks in technology as a consortium of companies including Berkshire Partners, Bain Capital and Advent International teamed up last quarter to put forward a combined $1.1 billion for the Irish electronic education company SkillSoft. It was one of the first private equity deals that broke the $1 billion mark in nearly two and a half years, the 451 Group said.
– Cyrus Sanati
Go to Report from the 451 Group »
Thursday, April 01, 2010
The Pace of Deal-Making Picks Up
By MICHAEL J. de la MERCED, NYT DealBook blog, April 1, 2010:
CORPORATE buyers are intensifying their hunt for deals — and they’re becoming a bit bolder.
More than two years past the start of the financial crisis, deal-making is continuing an ascent as companies seek to bolster their growth through mergers and acquisitions. And as their collective appetite grows, so too does their willingness to consider more aggressive international transactions or unsolicited bids.
The last few months have brought a welter of multibillion-dollar deals, like Comcast’s purchase of a majority stake in NBC Universal, Kraft’s successful $19 billion takeover of Cadbury of Britain and the American International Group’s $51.4 billion sale of two major units. And a spate of unsolicited hostile offers has emerged, notably the Simon Property Group’s $10 billion bid for General Growth Properties, which had filed for bankruptcy.
“The next two quarters will probably be defined as a very aggressive period of speed-dating, where companies will try out different combinations to see if they make strategic sense and are actionable,” said Paul G. Parker, head of global mergers and acquisitions for Barclays Capital.
Worldwide deal volumes swelled to about $564 billion for the three months ended March 31, according to data from Thomson Reuters, 18.4 percent higher than the same time last year. That is a little over half the deal volume of the first quarter of 2007 (which was nearly the peak of mergers activity), but deal-makers say they do not expect to reach those levels for some time.
“The economy’s far from ideal, but companies now have more confidence than they have had in the last 18 months,” said Victor I. Lewkow, a partner at the law firm Cleary Gottlieb Steen & Hamilton.
The conditions that foster successful deal-making are continuing to improve. The stock markets have largely stabilized, with the Standard & Poor’s 500-stock index rising almost 5 percent for the quarter, providing greater clarity into how much companies are worth and helping instill confidence in management teams about potential deals they may be considering.
Just as important, robust stock and credit markets have continued to make financing available for buyers contemplating a takeover. Interest rates remain low, and many strategic companies are drawing upon hoards of cash they stockpiled over the past year.
“The debt markets are wide open,” said Mark Shafir, Citigroup’s global head of mergers and acquisitions. “There’s a lot of capacity in the marketplace.”
Whereas mergers activity last year was dominated primarily by health care and financial services companies, deal-makers say now they are spending time on a broad range of industries.
“It’s across the board,” said Eduardo G. Mestre, vice chairman of Evercore Partners. “I have a very hard time saying that one sector is more active than another sector.”
The economic recovery has also helped alter the dynamics of buyers and sellers. The average worldwide deal premium has fallen nearly 5 percentage points, to 27.5 percent, for the first quarter, according to Thomson Reuters, although it rose 25 percent for transactions in the United States.
While buyers have gained more confidence in pursuing their targets, companies eyed as acquisitions have gotten a better sense of how much they are worth — and more are deciding that the best way to grow is to sell themselves.
“Many companies have moved toward new 52-week highs,” said Chris Ventresca, a co-head of North America mergers and acquisitions at JPMorgan Chase. “They still have uncertainty with regard to their business outlook and don’t see a catalyst for significant stock price appreciation. That provides some basis for sellers to think about traditional premiums over their current stock performance.”
Still, other potential acquisitions say that they are better equipped to grow alone, leaving insistent suitors to ponder whether to try a hostile takeover. Beyond Simon, Air Products and Chemicals, Astellas Pharma, Carl C. Icahn and Elliott Management are among those that have chosen to make unfriendly bids.
The improvement in the debt markets has also helped the private equity industry — largely relegated to the margins in 2009 — assert itself as an active presence once again. Leveraged buyout firms struck about $31.7 billion worth of deals during the first quarter of 2010, amounting to about 5.6 percent of all mergers activity worldwide.
Private equity firms like the Blackstone Group and Kohlberg Kravis Roberts have spoken of their billions of dollars in “dry powder,” or committed investor capital, for some time. Now, with banks proving willing to lend and investors comfortable with riskier bond and loan offerings, such firms are expected to push for bigger deals again, though not as large as the immense leveraged buyouts of three years ago.
Some are also finding buyers for some of their portfolio companies, like Apax Partners’ $3 billion sale of Tommy Hilfiger to Phillips-Van Heusen and Oak Hill Capital Partners’ $1.1 billion sale of Duane Reade to Walgreen. These sales help the buyout firms generate profit and clear room for future acquisitions.
“Private equity firms spent most of last year helping their portfolio companies,” said Randi C. Lesnick, a partner at the law firm Jones Day. “What we’ve been seeing and hearing is an uptick in their interest in new deals.”
Deals have also taken on a more international character: Cross-border transactions added up to about 36.6 percent of all mergers for the first quarter, nearly doubling last year’s number. Deal-makers point to a wide array of mergers, like the Kraft-Cadbury deal and the takeover of A.I.G.’s Asian life insurance arm by Prudential of Britain.
Emerging markets like China and Brazil have proved a font of deal activity: they accounted for $181.7 billion of deals this quarter, according to Thomson Reuters, or 32.2 percent of worldwide volume.
Their expanding presence in mergers and acquisitions has manifested itself both directly, as in Geely of China’s agreement to pay $1.8 billion for Volvo, and indirectly, as in Prudential’s effort to expand its Asian presence through its A.I.G. deal and Kraft’s desire for Cadbury’s footprint in India, Russia and other countries. (A few deals, including Sichuan Tengzhong Heavy Industrial Machines’ $150 million offer for Hummer, fell apart, reportedly because of regulatory troubles.)
Deal-makers say that as China and other developing countries continue to seek natural resources and to put their swelling coffers to good use, they will be seeking even bigger pieces of the mergers pie. “They are emerged markets,” said Antonio Weiss, Lazard’s global head of investment banking. “It’s become old-fashioned to think of these regions as emerging.”
Go to DealBook’s Spring 2010 Special Section »
CORPORATE buyers are intensifying their hunt for deals — and they’re becoming a bit bolder.
More than two years past the start of the financial crisis, deal-making is continuing an ascent as companies seek to bolster their growth through mergers and acquisitions. And as their collective appetite grows, so too does their willingness to consider more aggressive international transactions or unsolicited bids.
The last few months have brought a welter of multibillion-dollar deals, like Comcast’s purchase of a majority stake in NBC Universal, Kraft’s successful $19 billion takeover of Cadbury of Britain and the American International Group’s $51.4 billion sale of two major units. And a spate of unsolicited hostile offers has emerged, notably the Simon Property Group’s $10 billion bid for General Growth Properties, which had filed for bankruptcy.
“The next two quarters will probably be defined as a very aggressive period of speed-dating, where companies will try out different combinations to see if they make strategic sense and are actionable,” said Paul G. Parker, head of global mergers and acquisitions for Barclays Capital.
Worldwide deal volumes swelled to about $564 billion for the three months ended March 31, according to data from Thomson Reuters, 18.4 percent higher than the same time last year. That is a little over half the deal volume of the first quarter of 2007 (which was nearly the peak of mergers activity), but deal-makers say they do not expect to reach those levels for some time.
“The economy’s far from ideal, but companies now have more confidence than they have had in the last 18 months,” said Victor I. Lewkow, a partner at the law firm Cleary Gottlieb Steen & Hamilton.
The conditions that foster successful deal-making are continuing to improve. The stock markets have largely stabilized, with the Standard & Poor’s 500-stock index rising almost 5 percent for the quarter, providing greater clarity into how much companies are worth and helping instill confidence in management teams about potential deals they may be considering.
Just as important, robust stock and credit markets have continued to make financing available for buyers contemplating a takeover. Interest rates remain low, and many strategic companies are drawing upon hoards of cash they stockpiled over the past year.
“The debt markets are wide open,” said Mark Shafir, Citigroup’s global head of mergers and acquisitions. “There’s a lot of capacity in the marketplace.”
Whereas mergers activity last year was dominated primarily by health care and financial services companies, deal-makers say now they are spending time on a broad range of industries.
“It’s across the board,” said Eduardo G. Mestre, vice chairman of Evercore Partners. “I have a very hard time saying that one sector is more active than another sector.”
The economic recovery has also helped alter the dynamics of buyers and sellers. The average worldwide deal premium has fallen nearly 5 percentage points, to 27.5 percent, for the first quarter, according to Thomson Reuters, although it rose 25 percent for transactions in the United States.
While buyers have gained more confidence in pursuing their targets, companies eyed as acquisitions have gotten a better sense of how much they are worth — and more are deciding that the best way to grow is to sell themselves.
“Many companies have moved toward new 52-week highs,” said Chris Ventresca, a co-head of North America mergers and acquisitions at JPMorgan Chase. “They still have uncertainty with regard to their business outlook and don’t see a catalyst for significant stock price appreciation. That provides some basis for sellers to think about traditional premiums over their current stock performance.”
Still, other potential acquisitions say that they are better equipped to grow alone, leaving insistent suitors to ponder whether to try a hostile takeover. Beyond Simon, Air Products and Chemicals, Astellas Pharma, Carl C. Icahn and Elliott Management are among those that have chosen to make unfriendly bids.
The improvement in the debt markets has also helped the private equity industry — largely relegated to the margins in 2009 — assert itself as an active presence once again. Leveraged buyout firms struck about $31.7 billion worth of deals during the first quarter of 2010, amounting to about 5.6 percent of all mergers activity worldwide.
Private equity firms like the Blackstone Group and Kohlberg Kravis Roberts have spoken of their billions of dollars in “dry powder,” or committed investor capital, for some time. Now, with banks proving willing to lend and investors comfortable with riskier bond and loan offerings, such firms are expected to push for bigger deals again, though not as large as the immense leveraged buyouts of three years ago.
Some are also finding buyers for some of their portfolio companies, like Apax Partners’ $3 billion sale of Tommy Hilfiger to Phillips-Van Heusen and Oak Hill Capital Partners’ $1.1 billion sale of Duane Reade to Walgreen. These sales help the buyout firms generate profit and clear room for future acquisitions.
“Private equity firms spent most of last year helping their portfolio companies,” said Randi C. Lesnick, a partner at the law firm Jones Day. “What we’ve been seeing and hearing is an uptick in their interest in new deals.”
Deals have also taken on a more international character: Cross-border transactions added up to about 36.6 percent of all mergers for the first quarter, nearly doubling last year’s number. Deal-makers point to a wide array of mergers, like the Kraft-Cadbury deal and the takeover of A.I.G.’s Asian life insurance arm by Prudential of Britain.
Emerging markets like China and Brazil have proved a font of deal activity: they accounted for $181.7 billion of deals this quarter, according to Thomson Reuters, or 32.2 percent of worldwide volume.
Their expanding presence in mergers and acquisitions has manifested itself both directly, as in Geely of China’s agreement to pay $1.8 billion for Volvo, and indirectly, as in Prudential’s effort to expand its Asian presence through its A.I.G. deal and Kraft’s desire for Cadbury’s footprint in India, Russia and other countries. (A few deals, including Sichuan Tengzhong Heavy Industrial Machines’ $150 million offer for Hummer, fell apart, reportedly because of regulatory troubles.)
Deal-makers say that as China and other developing countries continue to seek natural resources and to put their swelling coffers to good use, they will be seeking even bigger pieces of the mergers pie. “They are emerged markets,” said Antonio Weiss, Lazard’s global head of investment banking. “It’s become old-fashioned to think of these regions as emerging.”
Go to DealBook’s Spring 2010 Special Section »
Monday, March 01, 2010
Four Thoughts About the Return of Merger Monday
From WSJ DealJournal, March 1, 2010:
By Michael Corkery
Merger Monday is back, at least for a week. There were six big deals, totaling $49.2 billion, unveiled this morning, from hostile pharmaceutical bids to the $35.5 billion sale of American International Group’s Asian life insurance unit.
So, what does today’s flood of deals say about the economy, the state of M&A and future deal making? Here are four takeaways:
Good things come to sellers who wait. When the stock market swooned last spring, the government decided to hold off on AIG’s asset sales in hopes of avoiding a fire sale. In the case of selling its Asian life insurance business, that strategy appears to have paid off. Assuming the deal closes, the $35.5 billion that Prudential is paying for the AIG business unit is nearly half as much as other suitors were offering for the business last spring, according to people familiar with the matter. Likewise, in another deal announced this morning, Millipore’s $7.2 billion acquisition by Germany’s Merck, the per-share price of $107 is nearly double the Massachusetts biotechnology-supply company’s 52-week low of about $55 last March.
USA, USA, USA – Ok, so maybe the U.S. has only the No. 2 hockey team in the world. Still, some large overseas companies are making big bets on U.S. companies. Germany’s Merck is spending $7.2 billion to acquire Millipore, while Japan’s Astellas Pharma has launched a hostile $3.5 billion bid for OSI Pharmaceuticals, of Melville, N.Y. Both deals involve large premiums to where the stocks were trading before the deals were announced–50% for Millipore and 40% for OSI. The high prices also speak to confidence in U.S. drug and bio-tech manufacturing and its American customer base.
Playing it safe: Those deal watchers longing for the blockbuster deals that were common earlier in the decade will be sorely disappointed by the deals of late. Recent deals are driven by strategy, like Coke’s purchase last week of its biggest bottler, Coca-Cola Enterprises, or by necessity, as in AIG’s sale of its life insurance unit to raise cash to pay back the U.S. government. Gone for now it seems are “transformative” mergers like AOL-Time Warner. Today’s deals also are focused on fulfilling term goals. For example, Astellas and Merck are being driven by an urgent need to replenish their pharmaceutical pipelines.
Pocket Change: With the exception of the AIA sale, today’s deals are each valued at less than $10 billion. So while there is a steady stream of deals, they aren’t carrying large price tags. With the economy still on shaky ground, few companies are taking risks and throwing expensive “Hail Mary” passes.
By Michael Corkery
Merger Monday is back, at least for a week. There were six big deals, totaling $49.2 billion, unveiled this morning, from hostile pharmaceutical bids to the $35.5 billion sale of American International Group’s Asian life insurance unit.
So, what does today’s flood of deals say about the economy, the state of M&A and future deal making? Here are four takeaways:
Good things come to sellers who wait. When the stock market swooned last spring, the government decided to hold off on AIG’s asset sales in hopes of avoiding a fire sale. In the case of selling its Asian life insurance business, that strategy appears to have paid off. Assuming the deal closes, the $35.5 billion that Prudential is paying for the AIG business unit is nearly half as much as other suitors were offering for the business last spring, according to people familiar with the matter. Likewise, in another deal announced this morning, Millipore’s $7.2 billion acquisition by Germany’s Merck, the per-share price of $107 is nearly double the Massachusetts biotechnology-supply company’s 52-week low of about $55 last March.
USA, USA, USA – Ok, so maybe the U.S. has only the No. 2 hockey team in the world. Still, some large overseas companies are making big bets on U.S. companies. Germany’s Merck is spending $7.2 billion to acquire Millipore, while Japan’s Astellas Pharma has launched a hostile $3.5 billion bid for OSI Pharmaceuticals, of Melville, N.Y. Both deals involve large premiums to where the stocks were trading before the deals were announced–50% for Millipore and 40% for OSI. The high prices also speak to confidence in U.S. drug and bio-tech manufacturing and its American customer base.
Playing it safe: Those deal watchers longing for the blockbuster deals that were common earlier in the decade will be sorely disappointed by the deals of late. Recent deals are driven by strategy, like Coke’s purchase last week of its biggest bottler, Coca-Cola Enterprises, or by necessity, as in AIG’s sale of its life insurance unit to raise cash to pay back the U.S. government. Gone for now it seems are “transformative” mergers like AOL-Time Warner. Today’s deals also are focused on fulfilling term goals. For example, Astellas and Merck are being driven by an urgent need to replenish their pharmaceutical pipelines.
Pocket Change: With the exception of the AIA sale, today’s deals are each valued at less than $10 billion. So while there is a steady stream of deals, they aren’t carrying large price tags. With the economy still on shaky ground, few companies are taking risks and throwing expensive “Hail Mary” passes.
Wednesday, February 10, 2010
Corporate America Is More Pessimistic Than You Know
from Deal Journal - WSJ.com by Michael Corkery
Looking for an explanation for the deep freeze in merger & acquisition activity and the jittery stock market? Just ask the boards overseeing U.S. companies.
A whopping 66% of 1,200 corporate board members surveyed recently said U.S. companies wouldn’t return to “business as usual” until at least 2013, and will operate till then in an environment of sluggish sales and growth. Roughly 45% said the economy would n’t return to pre-crisis levels in terms of investment, employment and productivity before 2013, according to the survey, conducted by KPMG LLP, while 22% said it would come beyond 2014.
“Not withstanding what economists are saying about the recovery, we are hearing from board members that they just don’t see it,’’ says Mary Pat McCarthy, a KPMG vice chairwoman who oversaw the survey of directors at publicly traded companies of varying sizes across the U.S.
McCarthy spoke to Deal Journal this morning from Miami where KPMG is hosting a conference of primarily audit committee members of corporate boards. “We are hearing a steady drumbeat down here that a recovery is a way’s off,” she said.
Another concern among board members: That the cost cutting and layoffs that have helped boost corporate profits is going to hurt the companies in the long term. The survey found that 67% of the respondents said were most concerned that cost cutting would drain the company’s employee talent.
Other concerns: 36% said they worried that the cost cutting would weaken internal controls, 25% said it could raise the risk of fraud and 22% said they thought the integrity of financial reporting could suffer in the hands of leaner staffs.
Bankers, perpetual optimists by nature, have been saying recently that companies seem willing to contemplate deals and they expect M&A to bounce back this year. In light of the bleak portrait containted in the KPMG survey, the question is, just who are these bankers talking to?
Looking for an explanation for the deep freeze in merger & acquisition activity and the jittery stock market? Just ask the boards overseeing U.S. companies.
A whopping 66% of 1,200 corporate board members surveyed recently said U.S. companies wouldn’t return to “business as usual” until at least 2013, and will operate till then in an environment of sluggish sales and growth. Roughly 45% said the economy would n’t return to pre-crisis levels in terms of investment, employment and productivity before 2013, according to the survey, conducted by KPMG LLP, while 22% said it would come beyond 2014.
“Not withstanding what economists are saying about the recovery, we are hearing from board members that they just don’t see it,’’ says Mary Pat McCarthy, a KPMG vice chairwoman who oversaw the survey of directors at publicly traded companies of varying sizes across the U.S.
McCarthy spoke to Deal Journal this morning from Miami where KPMG is hosting a conference of primarily audit committee members of corporate boards. “We are hearing a steady drumbeat down here that a recovery is a way’s off,” she said.
Another concern among board members: That the cost cutting and layoffs that have helped boost corporate profits is going to hurt the companies in the long term. The survey found that 67% of the respondents said were most concerned that cost cutting would drain the company’s employee talent.
Other concerns: 36% said they worried that the cost cutting would weaken internal controls, 25% said it could raise the risk of fraud and 22% said they thought the integrity of financial reporting could suffer in the hands of leaner staffs.
Bankers, perpetual optimists by nature, have been saying recently that companies seem willing to contemplate deals and they expect M&A to bounce back this year. In light of the bleak portrait containted in the KPMG survey, the question is, just who are these bankers talking to?
Friday, January 29, 2010
I.P.O. Market Begins to Regain Its Luster
NYT DealBook, January 29, 2010, 4:10 pm — Updated: 4:10 pm -->
The I.P.O. pipeline in the United States is filling up as companies once afraid of braving the capital markets are now lining up to for initial public offerings. A fair number of these companies, especially in the financial industry, are looking to spin off businesses at lucrative prices.
The drought in I.P.O.’s reached its peak earlier last year during the financial crisis, with weeks and months going by without one offering hitting the market. Companies feared that the volatility and uncertainty in the financial markets meant that any offering, no matter how strong, would probably get hammered.
But by the fourth quarter, things were looking up. A total of 53 companies seeking to raise a collective $10.3 billion filed registration statements in the fourth quarter expressing their desire to go public, a two-year high, meeting pre-recession levels, according to Ernst & Young. And 32 companies hit the market in the fourth quarter, raising a sizable $17.4 billion, compared to just one company that went public in the fourth quarter of 2008, raising a tiny $144 million.
The upward trend does not seem to be a fluke, as Dealogic reported Friday that there were now 75 I.P.O.s in the pipeline looking to raise $13.6 billion. But what could be even more interesting is the number of companies getting ready to file.
“We have a pent-up demand to serve companies that are preparing for or are considering an I.P.O.,” Maria Pinelli, the Americans director of Ernst & Young’s strategic growth markets division, told DealBook.
Currently, technology companies are leading the I.P.O. market, but financial services companies could be a major contributor to future offerings, Ms. Pinelli said. While she would not talk specifically about any one company her firm is working with, Ms. Pinelli did say that many large companies were considering spin-offs of strong parts of their businesses to take to the stock market over the next two quarters.
Large financial firms may see spinning off a business unit as a better way to unlock its value than selling it to rival at a reduced price. Both Citigroup and the American International Group have said that they want to sell parts of their businesses to raise money to pay off government bailout money, but that they are waiting to do so when the time was right. That time may be coming soon via the stock market.
– Cyrus Sanati
The I.P.O. pipeline in the United States is filling up as companies once afraid of braving the capital markets are now lining up to for initial public offerings. A fair number of these companies, especially in the financial industry, are looking to spin off businesses at lucrative prices.
The drought in I.P.O.’s reached its peak earlier last year during the financial crisis, with weeks and months going by without one offering hitting the market. Companies feared that the volatility and uncertainty in the financial markets meant that any offering, no matter how strong, would probably get hammered.
But by the fourth quarter, things were looking up. A total of 53 companies seeking to raise a collective $10.3 billion filed registration statements in the fourth quarter expressing their desire to go public, a two-year high, meeting pre-recession levels, according to Ernst & Young. And 32 companies hit the market in the fourth quarter, raising a sizable $17.4 billion, compared to just one company that went public in the fourth quarter of 2008, raising a tiny $144 million.
The upward trend does not seem to be a fluke, as Dealogic reported Friday that there were now 75 I.P.O.s in the pipeline looking to raise $13.6 billion. But what could be even more interesting is the number of companies getting ready to file.
“We have a pent-up demand to serve companies that are preparing for or are considering an I.P.O.,” Maria Pinelli, the Americans director of Ernst & Young’s strategic growth markets division, told DealBook.
Currently, technology companies are leading the I.P.O. market, but financial services companies could be a major contributor to future offerings, Ms. Pinelli said. While she would not talk specifically about any one company her firm is working with, Ms. Pinelli did say that many large companies were considering spin-offs of strong parts of their businesses to take to the stock market over the next two quarters.
Large financial firms may see spinning off a business unit as a better way to unlock its value than selling it to rival at a reduced price. Both Citigroup and the American International Group have said that they want to sell parts of their businesses to raise money to pay off government bailout money, but that they are waiting to do so when the time was right. That time may be coming soon via the stock market.
– Cyrus Sanati
Brrrr. M&A Volume Still Caught in the Deep Freeze
WSJ, Deal Journal, Jan. 29, 2010:
Where is that M&A recovery?
Global deal volume through Jan. 28 is down 17% from the year-earlier month. And the U.S. was the worst performing region, down 72% and on par with the lows of last summer, according to Dealogic.
True, the year-earlier month included Pfizer’s $68 billion purchase of Wyeth, accounting for 31% of that month’s volume. Still, wasn’t 2010 supposed to be the year the deal market began its comeback? So what does this mean?
As Deal Journal has said before, the deal market is unlikely to come roaring back. Instead, the M&A market should show a “gentle recovery” in 2010. Sure, there are plenty of positive signs: Many corporate buyers are sitting on hordes of cash; the credit markets have improved, and banks are lending again for M&A, albeit selectively. Also, private equity should be more active as both buyers and sellers, and, perhaps more importantly, corporate executives are increasingly considering M&A.
Still, there is one large caveat: Deal activity will go the way of economy–both on the upside and downside.
So what will the M&A market look like this year? Probably a bit like 2004, according to a Robert W. Baird study. That was the year Cingular snagged AT&T Wireless, J.P. Morgan bought Bank One and BofA scooped up Fleet.
Anyway, here are some tidbits from Dealogic’s monthly M&A data:
The Latin American and Caribbean deal market has been the hottest, up 573%, thanks to the America Movil’s acquisition of Carso Global and Heineken’s purchase of FEMSA.
Overall, M&A activity in emerging markets is up 170%.
Credit Suisse Group stands atop the global league tables; Citigroup is atop the U.S. rankings.
Energy investment bank Tudor, Pickering Holt & Co. sits third in the U.S. league tables and sixth world-wide. It advised on Williams Cos.’s deal to merge two of its natural-gas pipeline and energy-processing affiliates.
The value of announced deals involving Chinese targets is up 93%.
Copyright 2008 Dow Jones & Company, Inc. All Rights Reserved
Where is that M&A recovery?
Global deal volume through Jan. 28 is down 17% from the year-earlier month. And the U.S. was the worst performing region, down 72% and on par with the lows of last summer, according to Dealogic.
True, the year-earlier month included Pfizer’s $68 billion purchase of Wyeth, accounting for 31% of that month’s volume. Still, wasn’t 2010 supposed to be the year the deal market began its comeback? So what does this mean?
As Deal Journal has said before, the deal market is unlikely to come roaring back. Instead, the M&A market should show a “gentle recovery” in 2010. Sure, there are plenty of positive signs: Many corporate buyers are sitting on hordes of cash; the credit markets have improved, and banks are lending again for M&A, albeit selectively. Also, private equity should be more active as both buyers and sellers, and, perhaps more importantly, corporate executives are increasingly considering M&A.
Still, there is one large caveat: Deal activity will go the way of economy–both on the upside and downside.
So what will the M&A market look like this year? Probably a bit like 2004, according to a Robert W. Baird study. That was the year Cingular snagged AT&T Wireless, J.P. Morgan bought Bank One and BofA scooped up Fleet.
Anyway, here are some tidbits from Dealogic’s monthly M&A data:
The Latin American and Caribbean deal market has been the hottest, up 573%, thanks to the America Movil’s acquisition of Carso Global and Heineken’s purchase of FEMSA.
Overall, M&A activity in emerging markets is up 170%.
Credit Suisse Group stands atop the global league tables; Citigroup is atop the U.S. rankings.
Energy investment bank Tudor, Pickering Holt & Co. sits third in the U.S. league tables and sixth world-wide. It advised on Williams Cos.’s deal to merge two of its natural-gas pipeline and energy-processing affiliates.
The value of announced deals involving Chinese targets is up 93%.
Copyright 2008 Dow Jones & Company, Inc. All Rights Reserved
Monday, December 28, 2009
M&A Downtrend Buoyed By Strategic Bargains
Abstracted from: Down But Not Out By: Russ Banham, CFO - Vol. 25, No. 9, Pgs. 50-54
Credit crunch hammers deals.
It comes as no surprise to dealmakers: M&A activity took a precipitous drop in late 2008 and early 2009. Global volume was down over 47% in the first half of 2009, and deal values almost 44%. In the first half of the year, US volume dropped nearly 37%, while deal values plummeted 85%. US volume was down over 40% in the first eight months of 2009, compared to the previous year; August's volume of $13 billion hit a 15-year low. Russ Banham's sources attribute much of this decline to credit's unavailability. Credit has constricted dramatically, and many buyers still have large outstanding loans for acquisitions made before the recession hit. Private equity has $400 billion in credit due by 2014, and no one knows what refinancing options might be available if needed, or indeed what a reasonable current valuation might be. The general lack of available credit has certainly tamped down M&A activity, but the economic climate played an equal role in restraining buyers from making deals.
Uncertain economy clouds decisions.
Buyers are probably not yet ready to bet that the fog has lifted. A number of large companies and private equity firms have stockpiled cash for future acquisitions, but few seem confident about future performance for themselves or their targets if the recession lingers. Performance, in turn, impacts pricing. Many targets today are selling for a fraction of their price a few years ago, but valuations could continue to drop unless the business climate changes. Potential buyers are watching and waiting for a clear bottom so they can buy on the upswing when the economy shows clear expansion. With a new accounting rule—FAS 141 (R)—in place that requires acquirors to publish ongoing valuations of acquisitions, 44% of the executives in one Deloitte survey indicated that they are reconsidering purchases. No one wants to publish results on the downswing. Only the highest probability deals are being pursued, the author reports. Interestingly, these deals are beating the odds: a Towers Perrin study shows that in 204 large global deals occurring between September 2008 and May 2009, 75% of the acquirors are now outperforming their tight-fisted peers by over 6%.
Strategic deals and bargains dominate.
Perhaps those strategic buyers recognized that acquisitions can generate growth when business is otherwise less than robust. Strategic buyers expanded their markets by picking up bargains, such as Radware's $18 million acquisition of Alteon from Nortel, which had paid $7.8 billion for it in 2000. Radware expanded its market and added 10,000 customers for a very cost-effective sum. When targets fit particularly well with the buyer, credit is still available, the author suggests. Beckman Coulter bought Olympus's diagnostic lab business, financing the deal with two notes and a stock offering while still keeping the rating agencies happy. The investors responded positively. M&A activity should rebound as buyers focus on quality, strategic fit, and advantageous pricing; sellers develop realistic exit valuations; and a few more quarters of solid earnings restores buyers' confidence.
Abstracted from CFO, published by CFO Publishing Corp., 253 Summer Street, Boston MA 02210. To subscribe, call (800) 877-5416; or visit www.cfo.com.
Credit crunch hammers deals.
It comes as no surprise to dealmakers: M&A activity took a precipitous drop in late 2008 and early 2009. Global volume was down over 47% in the first half of 2009, and deal values almost 44%. In the first half of the year, US volume dropped nearly 37%, while deal values plummeted 85%. US volume was down over 40% in the first eight months of 2009, compared to the previous year; August's volume of $13 billion hit a 15-year low. Russ Banham's sources attribute much of this decline to credit's unavailability. Credit has constricted dramatically, and many buyers still have large outstanding loans for acquisitions made before the recession hit. Private equity has $400 billion in credit due by 2014, and no one knows what refinancing options might be available if needed, or indeed what a reasonable current valuation might be. The general lack of available credit has certainly tamped down M&A activity, but the economic climate played an equal role in restraining buyers from making deals.
Uncertain economy clouds decisions.
Buyers are probably not yet ready to bet that the fog has lifted. A number of large companies and private equity firms have stockpiled cash for future acquisitions, but few seem confident about future performance for themselves or their targets if the recession lingers. Performance, in turn, impacts pricing. Many targets today are selling for a fraction of their price a few years ago, but valuations could continue to drop unless the business climate changes. Potential buyers are watching and waiting for a clear bottom so they can buy on the upswing when the economy shows clear expansion. With a new accounting rule—FAS 141 (R)—in place that requires acquirors to publish ongoing valuations of acquisitions, 44% of the executives in one Deloitte survey indicated that they are reconsidering purchases. No one wants to publish results on the downswing. Only the highest probability deals are being pursued, the author reports. Interestingly, these deals are beating the odds: a Towers Perrin study shows that in 204 large global deals occurring between September 2008 and May 2009, 75% of the acquirors are now outperforming their tight-fisted peers by over 6%.
Strategic deals and bargains dominate.
Perhaps those strategic buyers recognized that acquisitions can generate growth when business is otherwise less than robust. Strategic buyers expanded their markets by picking up bargains, such as Radware's $18 million acquisition of Alteon from Nortel, which had paid $7.8 billion for it in 2000. Radware expanded its market and added 10,000 customers for a very cost-effective sum. When targets fit particularly well with the buyer, credit is still available, the author suggests. Beckman Coulter bought Olympus's diagnostic lab business, financing the deal with two notes and a stock offering while still keeping the rating agencies happy. The investors responded positively. M&A activity should rebound as buyers focus on quality, strategic fit, and advantageous pricing; sellers develop realistic exit valuations; and a few more quarters of solid earnings restores buyers' confidence.
Abstracted from CFO, published by CFO Publishing Corp., 253 Summer Street, Boston MA 02210. To subscribe, call (800) 877-5416; or visit www.cfo.com.
Tuesday, December 22, 2009
Upbeat CEOs to Drive '10 M&A
Dealmakers expect worldwide M&A transaction volume to rise 20% to 30% next year if credit markets stay healthy
By Aleksandrs Rozens and Kelly Holman, IDDmagazine.com
December 17, 2009
The pace of mergers and acquisitions declined this year, but the dollar volume of activity will likely bounce back to over $3 trillion next year, according to an informal survey of the market by IDD. Market participants believe that Wall Street investment banks will see an increase in fee income not only from M&A advisory work but various other engagements like raising money to finance these deals.
The M&A chill eased early in the summer when debt markets were on surer footing. By fall, sentiment in corporate America had improved enough to spark a steady flow of transactions that is expected to carry on into 2010.
http://www.iddmagazine.com/issues/2009_47/upbeat-ceos-to-drive-10-ma-200990-1.html?partner=thestreet
By Aleksandrs Rozens and Kelly Holman, IDDmagazine.com
December 17, 2009
The pace of mergers and acquisitions declined this year, but the dollar volume of activity will likely bounce back to over $3 trillion next year, according to an informal survey of the market by IDD. Market participants believe that Wall Street investment banks will see an increase in fee income not only from M&A advisory work but various other engagements like raising money to finance these deals.
The M&A chill eased early in the summer when debt markets were on surer footing. By fall, sentiment in corporate America had improved enough to spark a steady flow of transactions that is expected to carry on into 2010.
http://www.iddmagazine.com/issues/2009_47/upbeat-ceos-to-drive-10-ma-200990-1.html?partner=thestreet
Wednesday, December 16, 2009
Tech M.&A. Expected to Rebound After Weak Year
from dealbook.blogs.nytimes.com, December 16, 2009:
Mergers and acquisitions languished in the technology sector this year as company valuations fluctuated wildly with the economy. But with the valuation gap closing and deal activity rising, bankers and corporate executives expect 2010 to be quite a busy year as technology companies seek to raise capital, divest noncore assets and acquire rivals.
To say it has been a quiet year for technology deals would be an understatement. In the first 11 months of the year, there were only 31 technology transactions valued at $1 billion or more, which is less than half the level of the boom years from 2005-2007, according to the 451 Group, a technology investment research firm.
But M.&A. spending in the technology sector is making a comeback. Spending in the second half of the year is running 50 percent higher than the combined spending in the first two quarters. That has been driven by a number of large transactions announced since last summer that probably would have been inconceivable earlier this year, like Hewlett-Packard’s $3.1 billion acquisition of 3Com and Xerox’s deal for Affiliated Computer Services.
The year’s slowdown in deal activity stemmed mostly from the inability of buyers and sellers to agree on a price. It was hard to project future cash flows for companies during the height of the financial crisis earlier this year. Technology start-ups, for example, were being valued at 0.9 times revenue in January but were fetching about 1.4 times revenue by the fourth quarter, according to the 451 Group.
“That’s a not-insignificant increase when compared to where valuations were earlier this year,” the 451 Group said in a research report. “Put into real-world terms, a start-up that was running at $10 million in revenue that sold for $9 million in early 2009 was worth $14 million closer to the end of the year.”
In a survey of industry professionals conducted by the 451 Group, eight out of 10 investment bankers said that the valuation gap would have little or no impact on deal-making in the coming year. About two-thirds of these bankers believe that company valuations will move higher next year and that the higher prices will not deter deals.
But eight out of 10 corporate development executives said that bridging the valuation gap would remain difficult. Nevertheless, the corporate officers still believe that there would be more movement on the part of companies next year on price and that more deals should be expected.
So what kind of deals is the market likely to see? The analysts at the 451 Group believe that there will continue to be a blurring of hardware and software offerings, like in the case of Oracle’s still-pending $7.4 billion acquisition of Sun Microsystems. Companies are trying to control the entire technology value chain now from parts to programs to services, so expect more vertically integrated deals.
There also seems to be a shift in technology alliances as companies move to intergrate across the value chain. For instance, Hewlett-Packard’s $3.1 billion acquisition of 3Com in November would have been almost inconceivable if Cisco Systems hadn’t antagonized its longtime ally by introducing its own blade server a half-year earlier, the 451 Group said. More deals that cross what were sacrosanct division lines between friends should be expected.
– Cyrus Sanati
Mergers and acquisitions languished in the technology sector this year as company valuations fluctuated wildly with the economy. But with the valuation gap closing and deal activity rising, bankers and corporate executives expect 2010 to be quite a busy year as technology companies seek to raise capital, divest noncore assets and acquire rivals.
To say it has been a quiet year for technology deals would be an understatement. In the first 11 months of the year, there were only 31 technology transactions valued at $1 billion or more, which is less than half the level of the boom years from 2005-2007, according to the 451 Group, a technology investment research firm.
But M.&A. spending in the technology sector is making a comeback. Spending in the second half of the year is running 50 percent higher than the combined spending in the first two quarters. That has been driven by a number of large transactions announced since last summer that probably would have been inconceivable earlier this year, like Hewlett-Packard’s $3.1 billion acquisition of 3Com and Xerox’s deal for Affiliated Computer Services.
The year’s slowdown in deal activity stemmed mostly from the inability of buyers and sellers to agree on a price. It was hard to project future cash flows for companies during the height of the financial crisis earlier this year. Technology start-ups, for example, were being valued at 0.9 times revenue in January but were fetching about 1.4 times revenue by the fourth quarter, according to the 451 Group.
“That’s a not-insignificant increase when compared to where valuations were earlier this year,” the 451 Group said in a research report. “Put into real-world terms, a start-up that was running at $10 million in revenue that sold for $9 million in early 2009 was worth $14 million closer to the end of the year.”
In a survey of industry professionals conducted by the 451 Group, eight out of 10 investment bankers said that the valuation gap would have little or no impact on deal-making in the coming year. About two-thirds of these bankers believe that company valuations will move higher next year and that the higher prices will not deter deals.
But eight out of 10 corporate development executives said that bridging the valuation gap would remain difficult. Nevertheless, the corporate officers still believe that there would be more movement on the part of companies next year on price and that more deals should be expected.
So what kind of deals is the market likely to see? The analysts at the 451 Group believe that there will continue to be a blurring of hardware and software offerings, like in the case of Oracle’s still-pending $7.4 billion acquisition of Sun Microsystems. Companies are trying to control the entire technology value chain now from parts to programs to services, so expect more vertically integrated deals.
There also seems to be a shift in technology alliances as companies move to intergrate across the value chain. For instance, Hewlett-Packard’s $3.1 billion acquisition of 3Com in November would have been almost inconceivable if Cisco Systems hadn’t antagonized its longtime ally by introducing its own blade server a half-year earlier, the 451 Group said. More deals that cross what were sacrosanct division lines between friends should be expected.
– Cyrus Sanati
Monday, December 14, 2009
Looking Ahead to 2010’s Deal Landscape
dealbook.blogs.nytimes.com, Monday, December 14, 2009:
Small deals will continue to dominate the mergers and acquisitions landscape in 2010, but their size and number will grow, Ernst & Young said in its annual deal outlook report on Monday.
Cash will remain a major component in acquisitions as the credit markets continue to improve, E&Y said. Meanwhile, the report predicts that private equity firms will reassert themselves as significant players both through opportunistic deals and divestitures of their own portfolio companies.
Only 145 completed deals broke the $1 billion mark in 2009, compared to 400 last year and 609 in 2007. “Mega-deals” of $5 billion or more are likely to be far and few between, E&Y said.
Still, the number of deals is expected to increase in 2010, according to the firm, which surveyed nearly 500 senior executives. Its study found that 25 percent of businesses are likely or highly likely to make an acquisition in the next six months, rising to 33 percent in the next 12 months and 41 percent within the next 24 months.
“We’re seeing signs of life emerge in the deal markets as the decade closes,” Rich Jeanneret, Americas vice chair for Ernst & Young’s transaction advisory services business, told DealBook in an interview.
The E&Y survey found that 53 percent of companies are conducting more rigorous due diligence as potential buyers adopt a more conservative approach to deal-making.
A large number of companies have record-breaking levels of cash on hand. Fortune 1000 companies have more than $1.8 trillion in cash on hand, a $271 billion increase from last year.
And private equity firms have about $400 billion in dry powder, making the leveraged buyout industry well-positioned to strike deals, the report said. E&Y forecasts that these firms will seek to refinance their portfolio companies, or build them through bolt-on acquisitions. Global divestitures may grow in the second half of 2009 as firms look to shed underperformers.
Still, financing will remain an impediment, the study found. About 62 percent of companies cited an inability to borrow enough money as a key issue preventing mergers from being completed in 2009. A loosening of credit markets should help boost deal volume somewhat next year, though the easy money of yesteryear is gone for now.
“While it is likely that deal activity may not return to pre-crisis levels within the next few years, there is some cause for optimism when looking at the three drivers of deal activity: confidence, credit and cash,” Steve Krouskos, Americas markets leader for Ernst & Young transaction advisory services said in a statement.
“Market fundamentals are strengthening, and deal activity is stabilizing,” he added. “Still, the market is full of mixed signals, which are expected to temper recovery.”
While E&Y doesn’t foresee any red-hot sectors ripe for mergers activity, some may see more action than others. The health care industry, for example, may prove popular given the stimulus money available to providers for the meaningful use of electronic health records. Integrated delivery systems, including hospital buying nursing homes and health care agencies, may also continue to grow in popularity.
In the financial sector, deals for asset managers may continue, in the wake of 2009 mergers like BlackRock’s acquisition of Barclays Global Investors.
Software and services companies will remain major targets, especially by strategic players seeking to advance their product portfolios.
– Cyrus Sanati
Small deals will continue to dominate the mergers and acquisitions landscape in 2010, but their size and number will grow, Ernst & Young said in its annual deal outlook report on Monday.
Cash will remain a major component in acquisitions as the credit markets continue to improve, E&Y said. Meanwhile, the report predicts that private equity firms will reassert themselves as significant players both through opportunistic deals and divestitures of their own portfolio companies.
Only 145 completed deals broke the $1 billion mark in 2009, compared to 400 last year and 609 in 2007. “Mega-deals” of $5 billion or more are likely to be far and few between, E&Y said.
Still, the number of deals is expected to increase in 2010, according to the firm, which surveyed nearly 500 senior executives. Its study found that 25 percent of businesses are likely or highly likely to make an acquisition in the next six months, rising to 33 percent in the next 12 months and 41 percent within the next 24 months.
“We’re seeing signs of life emerge in the deal markets as the decade closes,” Rich Jeanneret, Americas vice chair for Ernst & Young’s transaction advisory services business, told DealBook in an interview.
The E&Y survey found that 53 percent of companies are conducting more rigorous due diligence as potential buyers adopt a more conservative approach to deal-making.
A large number of companies have record-breaking levels of cash on hand. Fortune 1000 companies have more than $1.8 trillion in cash on hand, a $271 billion increase from last year.
And private equity firms have about $400 billion in dry powder, making the leveraged buyout industry well-positioned to strike deals, the report said. E&Y forecasts that these firms will seek to refinance their portfolio companies, or build them through bolt-on acquisitions. Global divestitures may grow in the second half of 2009 as firms look to shed underperformers.
Still, financing will remain an impediment, the study found. About 62 percent of companies cited an inability to borrow enough money as a key issue preventing mergers from being completed in 2009. A loosening of credit markets should help boost deal volume somewhat next year, though the easy money of yesteryear is gone for now.
“While it is likely that deal activity may not return to pre-crisis levels within the next few years, there is some cause for optimism when looking at the three drivers of deal activity: confidence, credit and cash,” Steve Krouskos, Americas markets leader for Ernst & Young transaction advisory services said in a statement.
“Market fundamentals are strengthening, and deal activity is stabilizing,” he added. “Still, the market is full of mixed signals, which are expected to temper recovery.”
While E&Y doesn’t foresee any red-hot sectors ripe for mergers activity, some may see more action than others. The health care industry, for example, may prove popular given the stimulus money available to providers for the meaningful use of electronic health records. Integrated delivery systems, including hospital buying nursing homes and health care agencies, may also continue to grow in popularity.
In the financial sector, deals for asset managers may continue, in the wake of 2009 mergers like BlackRock’s acquisition of Barclays Global Investors.
Software and services companies will remain major targets, especially by strategic players seeking to advance their product portfolios.
– Cyrus Sanati
Tuesday, December 08, 2009
Dealmakers cautious on 2010 M&A uptick
TheDeal.com, December 8, 2009:
While the M&A environment remains moribund (down 33% over last year), a recent survey by the Association for Corporate Growth and Thomson Reuters found that M&A professionals are guardedly optimistic about a pickup in the first half of next year with strategic deals and distressed sales leading the way.
The twice-yearly survey, which polled 921 investment bankers, private equity professionals, corporate development officers, lawyers, accountants and consultants in October and November, found that negative sentiment about the dealmaking environment hasn't changed over the last year, with 87% saying the environment is fair or poor. Over the next six months, however, the percentage of dealmakers who expect an increase in merger activity jumped to 82% from 56% six months ago.
About 80% of survey respondents identified the current environment as a buyer's market while 74% of respondents said the current market favors strategic investors, and 94% expect strategic investments to accelerate in 2010.
"Dealmaking continues to be caught in the doldrums with limited activity outside of distressed sales and select strategic investments, but the fact that merger professionals express heightened optimism about 2010 is a hopeful sign that a freshening wind will arise," said Dennis White, ACG chairman and senior counsel at McDermott, Will & Emery LLP.
While the credit crunch has decreased in importance as the biggest obstacle to M&A activity, the gap between bid and ask has been rising. And while average middle-market Ebitda multiples have fallen to 8.4 today from a high of 10.1 in 2007, dealmakers are still looking for bargains: 80% expect to pay no more than 5 times Ebitda for companies over the next six months.
"Business owners are slowly realizing that valuations will not return to what they were several years ago. Private equity and strategic buyers are all too aware of this and are patiently waiting for sellers to come to grips with the new valuation paradigm and to take some money off the table," said Harris Smith, ACG immediate past chairman and managing partner of private equity and strategic relationships at Grant Thornton LLP.
Dealmakers expect that healthcare/life sciences, manufacturing and distribution, financial services and technology will experience the most merger activity in the first half of 2010. And while they see improved debt markets, 56% expect more equity in deals, with 54% saying they expect to invest 40% or more in equity.
Of the private equity folks, 54% said they are actively pursuing distressed and undervalued companies, noting that the best opportunities for buyouts include manufacturing and distribution, business services and healthcare/life sciences, and for distressed investing manufacturing and distribution, real estate, consumer products and services, and financial services. Get ready. - Claire Poole
While the M&A environment remains moribund (down 33% over last year), a recent survey by the Association for Corporate Growth and Thomson Reuters found that M&A professionals are guardedly optimistic about a pickup in the first half of next year with strategic deals and distressed sales leading the way.
The twice-yearly survey, which polled 921 investment bankers, private equity professionals, corporate development officers, lawyers, accountants and consultants in October and November, found that negative sentiment about the dealmaking environment hasn't changed over the last year, with 87% saying the environment is fair or poor. Over the next six months, however, the percentage of dealmakers who expect an increase in merger activity jumped to 82% from 56% six months ago.
About 80% of survey respondents identified the current environment as a buyer's market while 74% of respondents said the current market favors strategic investors, and 94% expect strategic investments to accelerate in 2010.
"Dealmaking continues to be caught in the doldrums with limited activity outside of distressed sales and select strategic investments, but the fact that merger professionals express heightened optimism about 2010 is a hopeful sign that a freshening wind will arise," said Dennis White, ACG chairman and senior counsel at McDermott, Will & Emery LLP.
While the credit crunch has decreased in importance as the biggest obstacle to M&A activity, the gap between bid and ask has been rising. And while average middle-market Ebitda multiples have fallen to 8.4 today from a high of 10.1 in 2007, dealmakers are still looking for bargains: 80% expect to pay no more than 5 times Ebitda for companies over the next six months.
"Business owners are slowly realizing that valuations will not return to what they were several years ago. Private equity and strategic buyers are all too aware of this and are patiently waiting for sellers to come to grips with the new valuation paradigm and to take some money off the table," said Harris Smith, ACG immediate past chairman and managing partner of private equity and strategic relationships at Grant Thornton LLP.
Dealmakers expect that healthcare/life sciences, manufacturing and distribution, financial services and technology will experience the most merger activity in the first half of 2010. And while they see improved debt markets, 56% expect more equity in deals, with 54% saying they expect to invest 40% or more in equity.
Of the private equity folks, 54% said they are actively pursuing distressed and undervalued companies, noting that the best opportunities for buyouts include manufacturing and distribution, business services and healthcare/life sciences, and for distressed investing manufacturing and distribution, real estate, consumer products and services, and financial services. Get ready. - Claire Poole
Friday, December 04, 2009
Finally, a Month for Giving M&A Thanks
By Stephen Grocer, WSJ Deal Journal, December 1, 2009:
The recovery in the M&A market may have finally gained some traction.
November ranks as the best month for deal making in more than a year. Global M&A volume hit $287.75 billion, more than double the year-earlier month’s total, according to Dealogic. Of course, November 2008 was the worst month for deal making in the past three years. But last month also marked a 93% increase over October and a 32% jump from September. U.S. deal volume, at $83 billion, more than quadrupled from a year earlier and nearly tripled from October.
More important than the numbers, though, were the signs that recovery in deal making just might be sustainable this time around. November’s M&A activity, for instance, wasn’t dominated by one large transaction. In fact, there were 40 deals valued at more that $1 billion announced in November, the highest total in more than a year, including three deals above $10 billion, according to the data.
That has all been helped by Wall Street’s willingness to once again open its checkbook. Nearly $30 billion in loans were announced this month to fund acquisitions or leveraged buyouts. Eight of the biggest announced financing deals were for heavily leveraged companies, signaling a higher risk appetite at banks.
The takeover battle for Cadbury is a prime example of this willingness to finance deals again. Nine banks have stepped in to provide $9.3 billion in financing commitments for Kraft Foods’ pursuit of the U.K. chocolatier. If Hershey decides to make a rival bid for Cadbury, both J.P. Morgan Chase and Bank of America Merrill Lynch are willing to provide $5 billion apiece in financing.
The willingness to lend also extended to PE firms. Two private-equity deals landed among the top 10 deals last month, and already private-equity deal volume is at its highest levels world-wide since the third quarter of 2008.
As the worst of the Great Recession recedes and stocks contiue to rally, companies are becoming more willing to deal. In a survey published last month by Ernst & Young, a quarter of 490 company executives polled said that they planned to do a deal within the next six months, and a third said they had M&A plans for the next 12 months. That sentiment comes at a time when the ability of firms to increase profits through cost cutting is becoming increasingly limited, leaving M&A as one of the few routes to increase revenue and profits.
That said, there are still dark clouds hanging over the M&A industry. The same Ernst & Young survey found that even though executives realize the present opportunity, 62% feel their ability to act will be constrained by the lack of available financing, among other reasons.
The recovery in the M&A market may have finally gained some traction.
November ranks as the best month for deal making in more than a year. Global M&A volume hit $287.75 billion, more than double the year-earlier month’s total, according to Dealogic. Of course, November 2008 was the worst month for deal making in the past three years. But last month also marked a 93% increase over October and a 32% jump from September. U.S. deal volume, at $83 billion, more than quadrupled from a year earlier and nearly tripled from October.
More important than the numbers, though, were the signs that recovery in deal making just might be sustainable this time around. November’s M&A activity, for instance, wasn’t dominated by one large transaction. In fact, there were 40 deals valued at more that $1 billion announced in November, the highest total in more than a year, including three deals above $10 billion, according to the data.
That has all been helped by Wall Street’s willingness to once again open its checkbook. Nearly $30 billion in loans were announced this month to fund acquisitions or leveraged buyouts. Eight of the biggest announced financing deals were for heavily leveraged companies, signaling a higher risk appetite at banks.
The takeover battle for Cadbury is a prime example of this willingness to finance deals again. Nine banks have stepped in to provide $9.3 billion in financing commitments for Kraft Foods’ pursuit of the U.K. chocolatier. If Hershey decides to make a rival bid for Cadbury, both J.P. Morgan Chase and Bank of America Merrill Lynch are willing to provide $5 billion apiece in financing.
The willingness to lend also extended to PE firms. Two private-equity deals landed among the top 10 deals last month, and already private-equity deal volume is at its highest levels world-wide since the third quarter of 2008.
As the worst of the Great Recession recedes and stocks contiue to rally, companies are becoming more willing to deal. In a survey published last month by Ernst & Young, a quarter of 490 company executives polled said that they planned to do a deal within the next six months, and a third said they had M&A plans for the next 12 months. That sentiment comes at a time when the ability of firms to increase profits through cost cutting is becoming increasingly limited, leaving M&A as one of the few routes to increase revenue and profits.
That said, there are still dark clouds hanging over the M&A industry. The same Ernst & Young survey found that even though executives realize the present opportunity, 62% feel their ability to act will be constrained by the lack of available financing, among other reasons.
Friday, November 20, 2009
Ohio Sues Credit Rating Agencies
Ohio’s attorney general sued Standard & Poor’s, Moody’s and Fitch Ratings on Friday, asserting that they provided misleading credit ratings that led to hundreds of millions of losses for state funds.
The official, Richard Cordray, filed the lawsuit in United States District Court for the Southern District of Ohio on behalf of five Ohio funds that assert they lost more than $457 million because of “false and misleading ratings” of mortgage-backed securities by the ratings agencies.
Officials at Moody’s and Standard & Poor’s, which is owned by McGraw-Hill, could not be immediately reached for comment. A spokesman for Fitch Ratings, which is owned by Fimalac S.A., had no immediate comment.
Ohio’s lawsuit is the latest in a string of actions against the ratings agencies, which have been criticized for feeding the housing slump and credit market turmoil by assigning high ratings to risky securities that later tumbled in value.
Attorney General Andrew Cuomo of New York ended an investigation of rating agencies last year by striking a pact that changed the way they charge fees for reviewing mortgage-backed securities.
Attorney General Richard Blumenthal of Connecticut has also investigated the rating agencies.
Mr. Cordray’s lawsuit was filed on behalf of five major funds — the Ohio Public Employees Retirement System, the State Teachers Retirement System of Ohio, the Ohio Police & Fire Pension Fund, the School Employees Retirement System of Ohio and the Ohio Public Employees Deferred Compensation Program.
Go to Article from Reuters via The New York Times »
The official, Richard Cordray, filed the lawsuit in United States District Court for the Southern District of Ohio on behalf of five Ohio funds that assert they lost more than $457 million because of “false and misleading ratings” of mortgage-backed securities by the ratings agencies.
Officials at Moody’s and Standard & Poor’s, which is owned by McGraw-Hill, could not be immediately reached for comment. A spokesman for Fitch Ratings, which is owned by Fimalac S.A., had no immediate comment.
Ohio’s lawsuit is the latest in a string of actions against the ratings agencies, which have been criticized for feeding the housing slump and credit market turmoil by assigning high ratings to risky securities that later tumbled in value.
Attorney General Andrew Cuomo of New York ended an investigation of rating agencies last year by striking a pact that changed the way they charge fees for reviewing mortgage-backed securities.
Attorney General Richard Blumenthal of Connecticut has also investigated the rating agencies.
Mr. Cordray’s lawsuit was filed on behalf of five major funds — the Ohio Public Employees Retirement System, the State Teachers Retirement System of Ohio, the Ohio Police & Fire Pension Fund, the School Employees Retirement System of Ohio and the Ohio Public Employees Deferred Compensation Program.
Go to Article from Reuters via The New York Times »
Thursday, November 19, 2009
Mid-Market Deal Trends
The post-lunch panel at The Deal Economy 2010 conference in New York City on Wednesday discussed the middle-market sector, where M&A has been on the rise.
Nathaniel Baker, a senior editor at The Deal, moderated the panel, which included Steve Deedy, a managing director at Alix Partners;Ken Hanau, a managing partner at 3i U.S.; Jim Epstein, a partner with Pepper Hamilton LLP; and Randy Schwimmer, senior managing director and head of capital markets at Churchill Financial.
Baker began the panel by noting his recent feature story Waiting to exhale in The Deal magazine, which explores how dealmakers are cautiously optimistic but fearful that the continuing paucity of credit could derail any middle-market rebound before it gets properly started.
Baker then asked the panel a series of questions:
Where is middle-market M&A dealflow, and what are some of the major issues affecting it?
Will lenders stay focused on middle-market deals?
What are the prospects for private equity investments and add-on acquisitions?
Which industry sectors and regions will remain vibrant?
Will cross-border and inbound investment continue?
Epstein addressed Baker's first question about middle-market M&A dealflow and some of the major issues affecting it. Epstein explained Pepper Hamilton splits midmarket into two categories: deals under and over $100 million.
"Of course, there's more credit available for small deals. LBOs are difficult above the $300 million to $400 million mark, but at least valuation gaps are shrinking," Epstein continued.
3i U.S.'s Hanau responded, "We've come a long way since March. People were fearful, but we're seeing a thawing out of credit markets. There is still caution, but the mindset is around growth."
Deedy said of the downturn, "PE firms were tending to focus on making portfolio companies healthy, but we're seeing a willingness to expand lately."
Baker followed up his question: "It sounds like there are plenty of buyers and sellers, and they're even willing to meet at a point in the middle. But where is debt financing these days?"
Churchill's Schwimmer responded, "There's definitely financing for small deals."
3i U.S.'s Hanau also offered a response, "There was so much liquidity on the sidelines. Valuations have not come off that much, and that's driven by the amount of capital on the sidelines that's waiting to be deployed."
Pepper Hamilton's Epstein explained PE is "still loathe to go to banks."
Schwimmer added, "People are still doing their credit homework. This isn't 2006."
Alix Partner's Deedy chimed in, "I agree there's a lot of money on the sidelines. Building products companies have been hit hard so it makes sense to go in there and get something on the cheap. But everyone's flocking to the same deals. Caution is also called for on future performance." Baker turned the panel's attention to lending. He asked: Who are the new lenders, and what types of terms are they offering?
Schwimmer opined, "The identity of midmarket investors has changed. A lot of banks have gone out of the midmarket lending business, but small banks are being adventurous. We'll see where they are in two years. Golub is one of a few colleagues that's still active. And of course special dedicated funds have cropped up in the past six months." It's worth noting as a side note that CLOs have been a bit discouraging.
Epstein said another area of access to debt is seller financing. "I've been involved in a couple deals that were purely seller financing."
Hanau thinks we shouldn't be concerned too much: "Like Randy said, banks are coming to the market, and we'll see more of that."
Baker recalled that building materials were mentioned as an attractive sector for dealmaking. He followed the segue by asking, "Are there others?"
3i's Hanau responded, "Well, our main reason is to go for U.S. companies that are global, such as in technology or industrials, tech and somewhat in healthcare."
Deedy said, "Building materials,, I think is just an opportunistic sector. You should also look at the 'green' space." He also mentions that there's not a lot of money chasing retail because of the volatility.
Schwimmer suggested you should "ask yourself what is going to be the consumer model -- where will they buy and where will businesses sell? Business services is a big growth area. Of course, healthcare is a big area, but it's hard to figure what small companies focus on. Then there's the overhang of Obamacare."
Epstein noted that you can also "look at this from a transactions perspective. Look at the GE-Universal deal. On a much smaller scale, you will find a lot off opportunities to benefit from regarding corporate carve outs."
Baker asked if there is any concern about consumer spending?
Alix Partners' Deedy said the consumer is important, and "2010 probably won't be big for three reasons: 1) Personal savings rates will be high; 2) unemployment will be high, there's no hockey stick-type recovery to look out for; and 3) politically, things will be hard, throwing money at it will be difficult."
Hanau said, "We're definitely cautious, even though Asia is doing well."
Schwimmer responded that "it's fascinating to see some headlines, to see retail sales being up. Businesses are raising the optics of value."
"What about strategic acquirers?" Baker asked.
Hanau said they will come back. They have better looking balance sheets than financial buyers, meaning private equity.
Epstein pointed out, "Corporates can use stock as currency and the markets have been headed in the right direction."
Schwimmer added that "smaller companies are raising their hands and saying 'Hey we can't do this alone.' As a No. 3 or No. 4 player, they're reaching out. They're banding together, and it will be competitive."
Hanau also noted, "You can't cut your way to glory. You do cost cutting for one reason -- to grow."
(Corporate Dealmaker has a string of stories noting how strategics have been cutting costs, such as jobs, while acquiring companies at the same time.)
Baker asked, "Where is financing?"
Schwimmer responded with his own question: "Does anybody remember what happened to that $280 billion deal pipeline? People love to have looming things over their heads, like ''2012' (referring to the movie). There's a high yield boom. Deals will get financed somehow."
Hanau added, "Yeah, we're already talking dividends. This will work itself out."
Epstein said to "look for the extension concept. You hit a maturity date, but the company is performing." Banks will give some leeway.
Deedy talked about "kicking the can down the road. There will be money out there. Also, there is the end of covenant-lite deals. Companies will have to be run more tightly. Rates will be higher; covenants will be more restricted."
Epstein said, "I think banks are going to take a second look at whether they will call default."
Baker opened the floor to questions from the audience, and one member asked about emerging markets.
Hanau answered, "Look at Asia and Brazil, Eastern Europe. Money will chase growth, but with growth comes risk. China and India are also areas for opportunity." - Baz Hiralal
Nathaniel Baker, a senior editor at The Deal, moderated the panel, which included Steve Deedy, a managing director at Alix Partners;Ken Hanau, a managing partner at 3i U.S.; Jim Epstein, a partner with Pepper Hamilton LLP; and Randy Schwimmer, senior managing director and head of capital markets at Churchill Financial.
Baker began the panel by noting his recent feature story Waiting to exhale in The Deal magazine, which explores how dealmakers are cautiously optimistic but fearful that the continuing paucity of credit could derail any middle-market rebound before it gets properly started.
Baker then asked the panel a series of questions:
Where is middle-market M&A dealflow, and what are some of the major issues affecting it?
Will lenders stay focused on middle-market deals?
What are the prospects for private equity investments and add-on acquisitions?
Which industry sectors and regions will remain vibrant?
Will cross-border and inbound investment continue?
Epstein addressed Baker's first question about middle-market M&A dealflow and some of the major issues affecting it. Epstein explained Pepper Hamilton splits midmarket into two categories: deals under and over $100 million.
"Of course, there's more credit available for small deals. LBOs are difficult above the $300 million to $400 million mark, but at least valuation gaps are shrinking," Epstein continued.
3i U.S.'s Hanau responded, "We've come a long way since March. People were fearful, but we're seeing a thawing out of credit markets. There is still caution, but the mindset is around growth."
Deedy said of the downturn, "PE firms were tending to focus on making portfolio companies healthy, but we're seeing a willingness to expand lately."
Baker followed up his question: "It sounds like there are plenty of buyers and sellers, and they're even willing to meet at a point in the middle. But where is debt financing these days?"
Churchill's Schwimmer responded, "There's definitely financing for small deals."
3i U.S.'s Hanau also offered a response, "There was so much liquidity on the sidelines. Valuations have not come off that much, and that's driven by the amount of capital on the sidelines that's waiting to be deployed."
Pepper Hamilton's Epstein explained PE is "still loathe to go to banks."
Schwimmer added, "People are still doing their credit homework. This isn't 2006."
Alix Partner's Deedy chimed in, "I agree there's a lot of money on the sidelines. Building products companies have been hit hard so it makes sense to go in there and get something on the cheap. But everyone's flocking to the same deals. Caution is also called for on future performance." Baker turned the panel's attention to lending. He asked: Who are the new lenders, and what types of terms are they offering?
Schwimmer opined, "The identity of midmarket investors has changed. A lot of banks have gone out of the midmarket lending business, but small banks are being adventurous. We'll see where they are in two years. Golub is one of a few colleagues that's still active. And of course special dedicated funds have cropped up in the past six months." It's worth noting as a side note that CLOs have been a bit discouraging.
Epstein said another area of access to debt is seller financing. "I've been involved in a couple deals that were purely seller financing."
Hanau thinks we shouldn't be concerned too much: "Like Randy said, banks are coming to the market, and we'll see more of that."
Baker recalled that building materials were mentioned as an attractive sector for dealmaking. He followed the segue by asking, "Are there others?"
3i's Hanau responded, "Well, our main reason is to go for U.S. companies that are global, such as in technology or industrials, tech and somewhat in healthcare."
Deedy said, "Building materials,, I think is just an opportunistic sector. You should also look at the 'green' space." He also mentions that there's not a lot of money chasing retail because of the volatility.
Schwimmer suggested you should "ask yourself what is going to be the consumer model -- where will they buy and where will businesses sell? Business services is a big growth area. Of course, healthcare is a big area, but it's hard to figure what small companies focus on. Then there's the overhang of Obamacare."
Epstein noted that you can also "look at this from a transactions perspective. Look at the GE-Universal deal. On a much smaller scale, you will find a lot off opportunities to benefit from regarding corporate carve outs."
Baker asked if there is any concern about consumer spending?
Alix Partners' Deedy said the consumer is important, and "2010 probably won't be big for three reasons: 1) Personal savings rates will be high; 2) unemployment will be high, there's no hockey stick-type recovery to look out for; and 3) politically, things will be hard, throwing money at it will be difficult."
Hanau said, "We're definitely cautious, even though Asia is doing well."
Schwimmer responded that "it's fascinating to see some headlines, to see retail sales being up. Businesses are raising the optics of value."
"What about strategic acquirers?" Baker asked.
Hanau said they will come back. They have better looking balance sheets than financial buyers, meaning private equity.
Epstein pointed out, "Corporates can use stock as currency and the markets have been headed in the right direction."
Schwimmer added that "smaller companies are raising their hands and saying 'Hey we can't do this alone.' As a No. 3 or No. 4 player, they're reaching out. They're banding together, and it will be competitive."
Hanau also noted, "You can't cut your way to glory. You do cost cutting for one reason -- to grow."
(Corporate Dealmaker has a string of stories noting how strategics have been cutting costs, such as jobs, while acquiring companies at the same time.)
Baker asked, "Where is financing?"
Schwimmer responded with his own question: "Does anybody remember what happened to that $280 billion deal pipeline? People love to have looming things over their heads, like ''2012' (referring to the movie). There's a high yield boom. Deals will get financed somehow."
Hanau added, "Yeah, we're already talking dividends. This will work itself out."
Epstein said to "look for the extension concept. You hit a maturity date, but the company is performing." Banks will give some leeway.
Deedy talked about "kicking the can down the road. There will be money out there. Also, there is the end of covenant-lite deals. Companies will have to be run more tightly. Rates will be higher; covenants will be more restricted."
Epstein said, "I think banks are going to take a second look at whether they will call default."
Baker opened the floor to questions from the audience, and one member asked about emerging markets.
Hanau answered, "Look at Asia and Brazil, Eastern Europe. Money will chase growth, but with growth comes risk. China and India are also areas for opportunity." - Baz Hiralal
No Bankruptcy M&A Slowdown
When people talk about dealflow slowing down, they're not referring to a slowdown in bankruptcy M&A," Anthony Baldo, editor of newsletters and databases at The Deal, said while moderating a panel on distressed debt at The Deal Economy 2010 conference in New York on Wednesday.
According to The Deal Pipeline, there have already been 527 deals in the bankruptcy space worth an aggregate $255 billion year to date. Last year at this time, there were 396 deals worth only $43.3 billion. In 2007, there were 289 deals worth $51 billion. This data shows that the marketplace is expanding.
This year, we've also seen:
398 "363 bankruptcy" sales worth almost $80 billion.
57 auctions involving credit bids, closed for more than $55 billion.
246 deals won by strategic buyers for a total of $45 billion.
One notable change from six months ago is there has been an uptick in prepackaged bankruptcies with a change of control element to them. One reason for this, according to Scott Winn, senior managing director at Zolfo Cooper, is that investors fear that bankruptcy will be too costly and will amount to a loss of control.
Prepackaged bankruptcies, whether they result in a debt-for-equity exchange or whether they result in an M&A transaction, shorten a company's time in Chapter 11, where adviser and counsel fees are being accrued, Winn said.
"Being in bankruptcy for four to five years can be very detrimental and risky," added Andrew Horrocks, managing director at Moelis & Co.
However, "the downside is that the underlying operating fix to a company does not occur [in a prepackaged bankruptcy], or at least it does not occur in context of restructuring," Winn concluded.
When looking for places to invest, Maria Boyazny, managing director at Siguler Guff & Co., suggested looking across five different categories."The distressed opportunity is very broad, compared to past distressed cycles, which focused on one or two areas," she said. "Looking around, spreads are at wide levels compared to historical standards, so distressed opportunities must be looked at comprehensively."
Those categories are:
Residential-mortgage-backed securities and home loan market, an $11 trillion market.
Commercial real estate and commercial debt market, a $3.5 trillion market in the U.S.
Corporate distressed debt leveraged loan market and the high-yield market, a $1.6 trillion and $1.1 trillion market, respectively, in the U.S.
Consumer debt, including student loans, auto debt and credit card debt, a $2.5 trillion market.
Municipal debt market.- Sara Behunek
According to The Deal Pipeline, there have already been 527 deals in the bankruptcy space worth an aggregate $255 billion year to date. Last year at this time, there were 396 deals worth only $43.3 billion. In 2007, there were 289 deals worth $51 billion. This data shows that the marketplace is expanding.
This year, we've also seen:
398 "363 bankruptcy" sales worth almost $80 billion.
57 auctions involving credit bids, closed for more than $55 billion.
246 deals won by strategic buyers for a total of $45 billion.
One notable change from six months ago is there has been an uptick in prepackaged bankruptcies with a change of control element to them. One reason for this, according to Scott Winn, senior managing director at Zolfo Cooper, is that investors fear that bankruptcy will be too costly and will amount to a loss of control.
Prepackaged bankruptcies, whether they result in a debt-for-equity exchange or whether they result in an M&A transaction, shorten a company's time in Chapter 11, where adviser and counsel fees are being accrued, Winn said.
"Being in bankruptcy for four to five years can be very detrimental and risky," added Andrew Horrocks, managing director at Moelis & Co.
However, "the downside is that the underlying operating fix to a company does not occur [in a prepackaged bankruptcy], or at least it does not occur in context of restructuring," Winn concluded.
When looking for places to invest, Maria Boyazny, managing director at Siguler Guff & Co., suggested looking across five different categories."The distressed opportunity is very broad, compared to past distressed cycles, which focused on one or two areas," she said. "Looking around, spreads are at wide levels compared to historical standards, so distressed opportunities must be looked at comprehensively."
Those categories are:
Residential-mortgage-backed securities and home loan market, an $11 trillion market.
Commercial real estate and commercial debt market, a $3.5 trillion market in the U.S.
Corporate distressed debt leveraged loan market and the high-yield market, a $1.6 trillion and $1.1 trillion market, respectively, in the U.S.
Consumer debt, including student loans, auto debt and credit card debt, a $2.5 trillion market.
Municipal debt market.- Sara Behunek
Friday, November 06, 2009
Private Equity Fires Back at Moody's
NYT DealBook, November 5, 2009, 5:45 pm — Updated: 7:51 am -->
Moody’s Investors Service seems to have touched quite a nerve with a new report that was critical of the private equity industry. The Private Equity Council, the main lobbying group for the industry, fired back on Thursday afternoon, noting that the report’s conclusions were open to “significant interpretation.”
The Moody’s report concludes that companies backed by private equity investors defaulted at a higher rate during the 21 months ending in October than similarly financed public companies. It contends that private equity firms invest virtually no capital in the companies they buy, especially those in distress.
The report also warns that many of the companies owned by private equity face significant refinancing risks in the next one to three years as more debt comes due.
The Private Equity Council noted that half of the private equity-backed company defaults examined in the study were not traditional defaults, but rather “opportunistic transactions to deleverage companies.”
If one filters out those transactions, the council said, the percentage of private equity companies in the sample that defaulted over the 21-month period falls to 10.2 percent. When annualizing this figure, it said, the annual default rate falls to 5.97 percent.
Stripping out these “opportunistic transactions” also has an effect on private-equity backed companies that have a speculative or “junk” credit rating, the council said. The adjusted speculative default rate was 8.4 percent, which is 29 percent lower than the overall American speculative-grade default rate for the 12 months ending in August, it said.
The Private Equity Council also took issue with its default rate in the 21 months covered in the report. While it acknowledged that the default rate was about 5 percent, the council said that annualized to a default rate of 2.91 percent, which is below the 3.5 percent annual default rate for speculative grade issuers from 1920-2008 and slightly higher than the estimated 1.6 percent annual private equity-backed company default rate.
The council also asserted that that Moody’s contention that private equity sponsors had not injected capital into their companies was “untrue.” The council cited data from Preqin, an alternative asset data provider, which noted that private equity funds had raised and invested $3.3 billion of equity capital to support their existing portfolio companies.
The council went on to note that Moody’s criticism ignored evidence that debt buybacks, which Moody’s classifies as defaults, could “do more to reduce a company’s leverage ratio than equity.”
– Cyrus Sanati
Moody’s Investors Service seems to have touched quite a nerve with a new report that was critical of the private equity industry. The Private Equity Council, the main lobbying group for the industry, fired back on Thursday afternoon, noting that the report’s conclusions were open to “significant interpretation.”
The Moody’s report concludes that companies backed by private equity investors defaulted at a higher rate during the 21 months ending in October than similarly financed public companies. It contends that private equity firms invest virtually no capital in the companies they buy, especially those in distress.
The report also warns that many of the companies owned by private equity face significant refinancing risks in the next one to three years as more debt comes due.
The Private Equity Council noted that half of the private equity-backed company defaults examined in the study were not traditional defaults, but rather “opportunistic transactions to deleverage companies.”
If one filters out those transactions, the council said, the percentage of private equity companies in the sample that defaulted over the 21-month period falls to 10.2 percent. When annualizing this figure, it said, the annual default rate falls to 5.97 percent.
Stripping out these “opportunistic transactions” also has an effect on private-equity backed companies that have a speculative or “junk” credit rating, the council said. The adjusted speculative default rate was 8.4 percent, which is 29 percent lower than the overall American speculative-grade default rate for the 12 months ending in August, it said.
The Private Equity Council also took issue with its default rate in the 21 months covered in the report. While it acknowledged that the default rate was about 5 percent, the council said that annualized to a default rate of 2.91 percent, which is below the 3.5 percent annual default rate for speculative grade issuers from 1920-2008 and slightly higher than the estimated 1.6 percent annual private equity-backed company default rate.
The council also asserted that that Moody’s contention that private equity sponsors had not injected capital into their companies was “untrue.” The council cited data from Preqin, an alternative asset data provider, which noted that private equity funds had raised and invested $3.3 billion of equity capital to support their existing portfolio companies.
The council went on to note that Moody’s criticism ignored evidence that debt buybacks, which Moody’s classifies as defaults, could “do more to reduce a company’s leverage ratio than equity.”
– Cyrus Sanati
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