Archive for December, 2007

M&A Deal Volume Analysis 2007: What a Year!

Posted on Wednesday, 26 December 2007. Filed under: Commentary, Mergers |

Everyone’s been jumping onto the bandwagen of reporting the deal volumes for 2007, even before the year’s done (granted that not many more deals will be announced before 31 December).  I recommend reporting from FT Alphaville, The New York Times Dealbook, and The Wall Street Journal’s Deal Journal.  Note that all of these reports were from 21 December, a full week before year-end.

It was a record year (depending on whether Thomson Financial or Dealogic’s figures are used, it was $4.4 trillion or $4.7 trillion, respectively).  But a year with very different figures in the first and second halves, although the second half was no where near as bad as some people predicted in August when the sub-prime crisis was in full swing and depositors were queuing outside Northern Rock while the Bank of England was bailing out the bank.

Some interesting statistics — and thoughts — from those articles and others:

  • The volume of deals in 2007 was 21% higher than 2006 and (as reported by the Wall Street Journal), even higher than 2000’s inflation-adjusted figure of more than $4 trillion.
  • The second half of the year was 27% lower than the first half globally, but in the US, the volume fell 46%.  As the US was the ‘leader’ in the housing bubble burst and the growing liquidity crisis (and for several months the rest of the world smugly thought they might not be affected), does this mean rest-of-world volumes will decline further, catching up to the US?
  • Volume in Europe was higher than in the US for the first time in five years and only the second time ever:  $1.78 trillion vs $1.57 trillion (Thomson Financial’s figures).  This may be partially due to the lag in Europe being affected by the credit markets, and the volumes in Europe may now decline further to match the US.
  • Private equity players represented a massive 41% of the US market through the first half of the year but only 15% of the second half.  As these firms drove much of this merger wave (since 2003), does their absence auger further declines?  I was at a breakfast just last month were one director of a venture capital fund said he didn’t expect to make any purchases in the next 12 months;  others at the breakfast were nodding their heads in agreement, too.  And his was a fund still flush with cash!  What has changed is the availability of ‘cheap’ debt financing.
  • All these figures are announced deals, but note that BHP Billiton was given on 21 December a ‘put up or shut up’ deadline of 6 February to make a formal bid for Rio Tinto (see article here from the Financial Times).  The proposed bid of $137 billion is a contributor to the 2007 ANNOUNCED volumes that could never come to pass if a formal bid is not made.
  • Goldman Sachs once again led in advising on deals, but Morgan Stanley (who were largest in Europe), JP Morgan and Citi all advised on deals worth more than $1 trillion.  Last year, only Goldman could claim that level.
  • Deals are taking longer to complete, with the average time being 88 days in the first half of the year and now 91 days in the second half. 

Where will it go from here?  To no one’s surprise, the conventional wisdom is for 2007 levels to be a record level for some time.  But let’s not forget that the time between the peak of the last cycle and the start of this cycle was only three years — a record short time.  Notably, the troughs between cycles have been getting shorter, so it may not be long before we see such global volumes again.

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Doughty Hansen Sells Moeller

Posted on Saturday, 22 December 2007. Filed under: Commentary, Mergers |

I can’t help but comment on this story that made news earlier this week (see FT Alphaville and the Financial Times), because of the company’s name and my surname being identical — and it’s not that common a name. 

(Full disclosure:  I am not aware of any family connections between me, my ancestors or the German company recently sold.)

What’s happened?  Doughty Hanson, the UK-based private equity group, sold its German-based electrical systems and components maker Möller Group for €1.6 billion to Eaton, the US-based industrial firm.  Doughty Hanson has only owned Moeller Group for two years, had bought it’s 75% stake in 2005 for €1.1 billion, of which only €192 million was equity.  They apparently earned a gross internal rate of return of 54% and trebled their investment. 

 Good deals are still to be had.

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