Archive for September 26th, 2007

Is this merger wave over?

Posted on Wednesday, 26 September 2007. Filed under: Business History, Commentary, Mergers |

Regular readers of this blog will know how often I look for the historical parallels to current events.  It is therefore very heartening to see others do this as well.  Helen Thomas at FT Alphaville has been reporting on the disappearence of the M&A market in August and September (see her two most recent articles:  The incredible shrinking world of M&A and Piff, Paff, Poof — UK M&A Vanishes).  Yesterday, Helen reported in a blog entitled Six weeks doth not an M&A trend make on the unnamed ‘prophets at UBS’ who wrote drew on parallels to earlier merger waves to reach their conclusions about what’s happening to the M&A market today:

Few public-to-public deals have been pulled, and we are not surprised CEOs are deferring what are key decisions. Our analysis of M&A during the US S&L, and LTCM/Russian debt crises suggests it is too early to write off corporate M&A.

While showing a chart of M&A activity correlated to stock market activity back to 1980, Helen then goes on to write: 

 Of course, what does put an end to M&A activity is a stock market (as opposed to credit) panic and/or something that feels like a good old fashioned recession…

In discussing the current volumes with several of the bulge bracket M&A bankers in the past several weeks, I’ve been told that they would concur with the FT  and the folks at UBS.  That is, the current market has certainly seen deals postponed, but most deals haven’t been pulled.  Yes, it may be more difficult to get large amounts of committed funding for deals to take place today, but the funding commitments aren’t being cancelled. 

Postponement may actually be good for the shareholders of the acquirers.  It may help eliminate some of the hype and slow down in some cases what might have been perceived by boards and shareholders to be an unstoppable deal.  Hopefully it will take the wind out of the sails of marginal deals.  These marginal deals would ultimately have been the statistics that pull the success rate of M&A deals downwards.  It’s not bad to see them postponed forever.  But the strategic deals that made sense two months ago, will largely still make sense today.  Some will reprice, which may assist the post-deal success.  Others will transact at the same price and terms as earlier, but today’s pause — the addition of time to prepare for the post-merger integration period — improves the likelihood of long term deal success. 

No, the wave isn’t over yet (although we may have seen the peak already), and the come-back (second bounce?) may be even better because of this current slowdown in deal activity.

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