Archive for September, 2009
It’s dangerous calling a bottom to a market as you can be wrong and no one (and certainly not me) has a clear crystal ball, but doesn’t there certainly seem to be a marked turn in sentiment about the M&A market – and this is happening before everyone is ready to call the end to the recession or the stock market lows. Disturbingly, I still talk to a number of economists who say we’re in a ‘fool’s rally’ or on the uptick in the first part of a ‘W’ cycle where we might see further lows before the economy really gets a sustained recovery – the so-called ‘double dip’. Could the recent rise in M&A deals be the same?
Historically, the M&A markets have been driven largely by other factors, although still somewhat correlated to the overall economic cycle. (It is important to remember that correlation is not necessarily causation). Certainly there are parts of the M&A market that link closely to the economy: one of these is the market for depressed companies (even those who declared bankruptcy or had gone into insolvency), and the M&A Research Centre at Cass Business School released a study of that market in June which did — correctly — indicate that the level of such deals does increase after a downturn.
As noted in another write-up here (see: Has the M&A market returned? Green shoots turn into harvest time… ), the M&A market is showing strong signs of recovery, and not just in the aforementioned distressed deals. Companies are more willing now to dust off the plans for restructuring and acquisition, whether in the confectionary (Kraft / Cadbury, and possibly other bidders), entertainment (Disney / Marvel), social networking (MySpace to buy iLike for an undisclosed amount) or oil field services industries (where Baker Hughes’ $5.5bn takeover of BJ Services is the largest oil services industry deal in more than a decade), and not just the pharmaceutical deals of earlier this year when the recovery appeared to many to be a one-industry upturn!
Note that some of these deals were likely to have been long in the making, and some may even be deals that were planned back in 2007 but then postponed when the market collapsed. Kraft’s bid for Cadbury was most likely stimulated by Mars’ purchase of Wrigley in 2007 for $23 billion. Disney has long been adding to it list of characters, and Spiderman and the The Hulk have existing strong franchises. One can only imagine the new rides being planned now in Disneyland for Spiderman and the others. And the Baker Hughes deal has its roots in a long-term consolidation of the energy extraction industries.
Suddenly there’s an urgency in the board room and in the executive suite: will the general market recovery quickly raise the price of potential targets above the ‘bargain basement’ levels currently available? Especially if the specific target has been wounded by the recession, especially financially and cannot launch as powerful a defence to remain independent.
This broader base – and now somewhat sustained – recovery does, in this writer’s opinion, represent the inflexion point when the M&A market turns up. Do others see it the same?Read Full Post | Make a Comment ( None so far )
Strategic acquisitions are once again headline news with the announcement of a number of massive deals on both sides of the Atlantic (see our blog entry: ‘ Has the M&A market returned? Green shoots turn into harvest time…’).
Wait a few weeks or months, and the headlines will talk more about the people who will be (or are already) being made redundant from those deals. As naturally as dusk follows day and water flows downhill, the merger of two companies results in people being fired, plants and offices closed, product lines shut down or merged and one of the two CEOs (plus one of the two CFOs, HR heads, Senior VPs for IT, etc) taking ‘early retirement’ or departing ‘for personal reasons’ and later showing up at a lesser well-regarded competitor.
Is there anything you can do about this if you’re one of the people in a company where a merger has just been announced? Yes, there definitely is. There are actions you can take as you ask yourself the question: ‘What do I do now that my company’s being acquired?’
As reported on 2 September 2009 in The Times in a review of my new book just released in July (Surviving M&A: Make the most of your company being acquired),
‘The spectre of a merger is enough to send a chill down the spines of most employees — with good reason. Mergers always carry a risk of redundancies: on average, 10 to 15 per cent of employees across both organisations lose their jobs in a merger, sometimes as many as a third. Even those who keep their jobs are likely to be fearful of the change to the status quo.
‘In a book just published, Surviving M&A: Make the Most of Your Company Being Acquired by Scott Moeller, director of the M&A Research Centre at Cass Business School in London, explains how to improve your chances of keeping your job, based on 350 interviews with employees who have been through M&A deals. “The first question you need to ask yourself is: ‘Do you want to stay?’ ” Professor Moeller said. “A merger might be the best time to leave.”’
There are many steps you can take to stay, as discussed in that book, ranging from ‘showing off’ your (hopefully) excellent work (and going against the natural tendency to ‘stay low’ at a time like this), increasing your internal networking and even volunteering for the planning and transition teams.
If the M&A market has truly started growing again and if we really are therefore at the start of a new strong M&A wave, then many people will be faced with the need to ‘survive’ in a way that they hadn’t anticipated. Best to get started now with some planning, even if you feel your company isn’t at risk. Do you think most of the employees at Cadbury anticipated the need to plan an acquisition survival strategy in 2009? Or did Mavel’s employees expect that they’ll need superhuman skills to retain their jobs in 2010?
[Note: you can find a variation of this posting on my other blog, Surviving Mergers]Read Full Post | Make a Comment ( None so far )
A study the Cass Business School conducted for Towers Perrin and reported widely (see, for example, Reuters’ report on 10 September 2009, ‘Deal Talk — Rallying stock markets help accelerate M&A plans’) showed that firms that do M&A deals are more likely to outperform their industry peers (and the market overall) than firms that have held back on doing acquisitions. This is consistent with an earlier study (released in June) that Towers Perrin sponsored and which focussed on the short-term market reaction to companies who were brave enough to do deals subsequent to the infamous Lehman bankruptcy weekend in September 2008. Both studies looked at all deals over $100 million done by public companies.
As reported in the above 10 September 2009 Reuters article: ‘Marco Boschetti, global head of M&A and restructuring at business consultancy firm Towers Perrin, said deals that closed in the second quarter of the year outperformed the market by 8.5 percent, compared to outperformance of 2 percent in the second quarter of 2008. “What this is saying is that there is a lot of value in deals at the moment and if you can afford to close a transaction you should go for it,” he said.’
This continues to confirm that the inflexion point in M&A activity may have been reached already, which I will write about shortly. Certainly if the word gets out that the market does reward firms that announce strategically defensible deals, even more deals should emerge from the planning stage to announcement and execution.Read Full Post | Make a Comment ( None so far )
What a change a few months makes. Everyone comes back from the summer holidays and the M&A market is once again alive and making front-page news. Looks as if some people didn’t take their holidays this year:
- US: Disney spends $4bn to purchase Marvel Entertainment, home to the Incredible Hulk and Spiderman, their biggest purchase since Pixar Animation in 2006 for $7.4 billion. eBay sells 65% of Skype for just over $2 billion to an investor group, and this was even a deal where the cash portion was 96% of the consideration with the venture capital industry putting up the money for the purchase.
- Trans-Atlantic: Kraft makes a bid for Cadbury. Hershey hires J.P. Morgan to consider a ‘white knight’ counter bid for Cadbury.
- Europe: The mobile phone market in the UK sees Orange and T Mobile proposing a merger , and no one even suggests that this could have competition concerns when their combined market share would be over 30%!
What’s happened? For anyone following the market closely, actually the market has never been dead. Yes, there were many deals withdrawn (but we recently looked at this, and although there were high profile deals that may have been pulled, only 2% of deals actually were!). Other deals were delayed (and it’s difficult to tell how many were postponed, but anecdotal evidence would indicate quite a few: but at least postponement isn’t cancellation!).
Advisors were working on deals, and the pipeline is large with many CEOs waiting for the time to pounce. These are often acquisitions that had been designed in their strategy departments (or in their own heads) over the past 18 months, but are only seeing the light of day now.
The demand for deals just doesn’t disappear anymore. 2008 saw a dearth of new deals but the first half of 2009 may ultimately be consider the low point: in 2009 in the US, the M&A market was 42% lower than the already depressed 2008. This period still had levels of deals (both in terms of numbers and value) that were way above the market lows earlier in this decade and many times greater than the peaks only 20 years ago. Fundamentally, companies need to do corporate combinations at all levels in order to compete in today’s global economy.
Even in a recession this need doesn’t disappear. Many companies and some industries need to restructure. And one company’s acquisition is another company’s sale of a division – as the seller needs to raise money for the core divisions, or, as in the case of eBay above, a refocus on the core).
Of course, the M&A market is highly reflective of the general economy, and for particular companies and industries, the general conditions for that industry. There is a ‘halo effect’ from the overall economy, because the confidence to do a major acquisition declines as overall confidence levels decline with company sales and the malaise in the world in general (as reflected in the news everyone hears on the television, in the press and when talking to friends, neighbours, customers and suppliers). This means, of course, that the M&A market will recover – as we’re seeing – as the economy recovers. Our analysis at Cass Business School shows a lag of a quarter or two in this increase, so it is to be expected that we’re seeing more than just ‘green shoots’. In the M&A market, ‘green shoots’ are the advisors’ strong pipelines, but they can ‘harvest’ the deals when they start happening with a pace we’ve only recently seen again.
Debt financing will also reappear, as will be the subject of a future blog entry.
We hear about ‘green shoots’ in the financial press all the time these days. I believe that the M&A market now beyond that phase? In fact, do you ever really have ‘green shoots’ at all in M&A (except for the advisors), or does the M&A market spring to life quickly like weeds, where it seems as if the dandelions come up within a day or two after you’ve mown the lawn?Read Full Post | Make a Comment ( None so far )