Archive for April, 2009
Are we at the tipping point where we are back into a more robust M&A market?
Just look at yesterday’s headline in the Financial Times: ‘M&A springs back to life’. Reporting on three mega-deals (Oracle’s agreement to buy Sun Microsystems for $7.4 billion, PepsiCo’s offer of $6 billion to buy out investors in its two biggest bottlers and GlaxoSmithKline announcement of a $3.6 billion purchase of Stiefel Laboratories), it really did look like a ‘Merger Monday’ … evoking memories of many a ‘Merger Monday’ back in the heyday of 2006 and 2007.
I was at an M&A breakfast this morning sponsored by CriticalEye and Accenture, and not only did the event start with the moderator showing yesterday FT headline, but the general concensus was the FT was reporting something that market practitioners had been seeing for a while, at least for strategic deals. (Notably, there was some disagreement about private equity deals.)
There certainly seem to be more bulls now than bears amongst the people in the M&A market that I see. The backlogs on deals is not getting smaller anymore, even though financing for deals is still tight and deals continue to be cancelled that had been many months in the making.
Whereas only a few weeks back, the general concensus was that the reviving M&A market was limited to a relatively small number of industries (led by pharmaceuticals — sse the post here of a few weeks back), now there appears to be activity in a number of industies. Although, I must admit, despite the Oracle / Sun deal, relatively few in the technology sector for the moment. Deals also don’t appear to need the government to make them happen, as we had in financials last year.
Are we at the tipping point? Before answering, do note that The New York Times reported on 29 October 2008 — almost six months ago — in a similarly entited article (‘The Tipping Point? Merger Deals Could Be Ray Of Hope’) that M&A might be leading the overall equity markets out of their bottom.Read Full Post | Make a Comment ( None so far )
There’s been a lot written recently about the impact of the downturn on the rankings of the major M&A advisors: much has been made of the drop of Goldman Sachs from the premier position to be overtaken by JP Morgan and Morgan Stanley, and the appearance of Evercore Partners in the top 10 (really in their case on the back of credit for one deal — albeit the largest of the first quarter — where they advised the pharmaceutical giant Wyeth in its $64.5 billion acquisition of Pfizer; overall Evercore only did three deals in the quarter versus UBS’ 44 who were in the position just above them in the league table).
Is it really a new world order of M&A advisors, or just ‘business as usual’? I think the latter.
Of course, one quarter does not a year make. But a number of analysts have noted that the firms who have taken large sums of government money (Bank of America Merrill Lynch and Citigroup) went down in the league tables: yet note that they didn’t drop much and are still firmly in the top 5. Credit Suisse had a nice increase of two spots, but otherwise the list looks pretty much the same as it always does.
Nevertheless, there are lots of reports of banker poaching. Again, what these reports seem to ignore is that this is ALWAYS the time of the year when people move — after bonuses are paid (even if this year the bonus season was missing). In fact, I would suggest that the poaching of bankers from one firm to another is not necessarily a sign of lack-of-health at some firms and vigour at others, but more a sign that the entire M&A market is beginning to stabilise, with perhaps signs of the long-awaited uptick.
Particular note has been made of departures at Merrill Lynch following its acquisition by Bank of America. But put this in perspective, too. Go back almost 10 years to the acquisition of Bankers Trust (with it’s M&A crown jewel of Alex Brown) and look at the news reports of people departing after the acquisition by Deutsche Bank. Yet Deutsche is today solidly amongst the top 10 M&A advisors consistently.Read Full Post | Make a Comment ( 2 so far )
Can we see the light at the end of the tunnel? I think I can.
The deal volumes for the first quarter were not bad. Not great, but the fact that they weren’t bad is a good sign. Just as in the housing market, when the declines end, that’s taken to be the start of the new bull market. Of course, it’s too early to predict an upturn in the market (whether M&A — on which I am happy to offer an opinion — or the real estate market — about which I would not opine). But there’s hope where none existed before.
Why am I confident in saying this, and having it posted here for posterity? It isn’t just the deal volume of the first quarter (nicely reported in the Financial Times here on 29 March 2009) at $525 billion with the FT headline ‘M&A starts year with 36% fall’. Yes, this was down over a third from the already-depressed levels of Q1 2008. But if this ‘depressed’ level continues for the year (that is, if you annualise the first quarter), then you get a total year level of $2.1 trillion. A respectable level that still would put 2009 in the top 10 years of M&A ever, and well above the 2002 trough of $1.2 trillion. Now THAT was a depressed level.
This does bear noting. Peak (1999) to trough (2002) in the last merger wave was down 72%. If 2009 really is the trough following the last peak (2007), then the decline is ‘just’ 55%. Not, as I’ve written last year, Armageddon. Not pleasant for the market, but there are other financial markets that have been hit much worse.
In the past several weeks, I’ve been speaking to a lot of practitioners in the M&A markets here in Europe. They have longer and larger backlogs than several months ago. They are beginning to think about hiring, and some actually are selectively adding to their teams (usually when they can get someone from one of the larger M&A firms who are struggling because of reasons other than their M&A deal volumes). No one has been talking about another round of redundancies or a reduced backlog of deals. Now…THAT’s encouraging.
And other analysts are seeing the same thing. Regent, a boutique technology M&A advisor here in Europe, wrote a report that shows in their sector that the ‘nadir’ was in November last year.
Anyone else seeing the light at the end of the tunnel?Read Full Post | Make a Comment ( None so far )