Archive for March, 2008

Unsurprising M&A Deal Volume: First Quarter 2008

Posted on Monday, 24 March 2008. Filed under: Commentary, Mergers |

M&A deal volumes are down significantly in the first quarter 2008.  This doesn’t come as a surprise to anyone, I am sure, so it should be put in perspective.

Of course, the final volumes for the quarter will not be available for another week, but with the Easter holidays underway, it isn’t likely the final figures will change dramatically. 

What will they look like?  According to preliminary figures widely reported from Mergermarket, the number of deals announced in the first quarter will be almost 30% down — not just when compared to the last quarter of 2007 but also when compared to the first quarter of 2007 (so…the year-over-year comparison).  And in historical terms, it’s the slowest since the first quarter of 2004.

This should be kept in perspective.  We’ve just been through — in 2006 and 2007 — the biggest M&A years in history.  The drop to Q1 2004 levels, still puts us at a deal volume figure that would have been hailed as ‘huge volume’ 10 years ago.  M&A volumes were increasing in 2004 and thus this volume four years ago was part of an upswing, while this current quarter is now part of a downturn.  So perceptions are different.  Very different.

And given the current turmoil in the markets, volumes will likely continue to come down as uncertainty certainly is not good for M&A, especially with the inability to fund deals with as much debt as previously.  Naturally, there are always some bottom-fishers, and they will love the current market — although I suspect many of those will wait for even further declines before acting.

Interestingly, advisory firms are still hiring M&A bankers.  Good deals will still need to be done.  Volume levels similar to 2004 still make a VERY good market.

Bear Stearns, Northern Rock and Société Générale

Posted on Monday, 17 March 2008. Filed under: Commentary, Mergers |

The big news is that Bear Stearns has been purchased.  Put out of its misery.  JP Morgan and the Federal Reserve have ridden to the rescue — some would say at the 11th hour — to make sure that the malaise surrounding Bear Stearns can be contained.  There’s lots of questions about whether Bear Stearns, the worst-hit firm on the Street from the credit and liquidity crisis, will be the only casualty or just the first.  Stay tuned.   Just as with the US presidential primaries, nothing seems to work as anticipated.  For staying up-to-date on this story, see the excellent coverage in the Financial Times., and for breaking news, FT Alphaville.

The Federal Reserve appears to have played a very large role in the sale — and reportedly is guaranteeing up to $30 billion in Bear Stearn’s less liquid assets.  The firm itself is being purchased by JP Morgan for a mere $2 per share, demonstrating clearly that equity shareholders should bear the brunt of risk when a company does poorly — and isn’t that an understatement of performance!  Note that little more than a year ago, Bear Stearns’ share price was $169.  A loss in share price of almost 99%;  that beats the loss in market capitalisation that AOL Time Warner achieved (97%) when they merged.  In both cases, the business models were flawed.

So, what’s the link to Northern Rock and Société Générale?  Readers of this blog will already know my thoughts about both (see here about Northern Rock and here about SocGen).  Certainly both Northern Rock and SocGen had flawed business models as well, and competitors were not surprised when either one had their near-fatal problems (Northern Rock also in the credit crisis).  Neither Northern Rock (with it’s UK version of the Bear Stearns market crisis impact) and SocGen (with it’s rogue trader(s) and the firm’s reaction to that crisis) should be allowed to remain independent.  Regulators in both France and the UK should have quickly encouraged another bank to take over where management failed those two companies.  And equity shareholders should have shouldered the impact. 

Note as well that Bear Stearns’ advisor, Lazard, was apparently trying over the weekend to shop Bear Stearns to other banks as well, including Barclays, HSBC and the Royal Bank of Scotland (who recently purchased ABN AMRO).  I hope this is noted by the French government, who appear to be trying to protect Société Générale from a foreign buyer.  This wasn’t a concern in the US, I’m sure, and the reason that Bear Stearns ended up in the hands of another US bank was likely to be more an issue of speed and simplicity than anything else.