Archive for February, 2010

M&A market not doing as badly as you think

Posted on Friday, 19 February 2010. Filed under: Commentary, Mergers |

Where have all the mega-deals gone?  There’s certainly been a dearth of deals since year-end.  It’s been a long time since I’ve opened up the newpaper in the morning and seen any front-page headlines about a new deal.  In fact, it’s been more about cancelled deals (IPOs such as New Look, Travelport and Merlin) or more about last year’s deals (such as Kraft / Cadbury and their final agreement).

So it was encouraging to see a monthly briefing report by Regent Corporate Finance Services that talked of an increase in at least one section of the market, European technology, which fortunately also would tend to be a leading indicator of future volumes in other industries as technology is often one of the first in a new merger cycle (after the large cyclical businesses such as pharmaceuticals).

Here’s what Regent said:

‘Although there were few big acquisition deals in January 2010, the overall volume of transactions was up by 12% on the month before. More importantly for those companies seeking a sale in 2010, valuations have continued their steady rise as both the trade and private equity buyers are active in seeking growth or extensions to their portfolio. Acquisition valuations are once again close to their normal relationship with valuations on the public markets.’

It particularly nice to see the participation again of the financial sponsors such as the private equity firms … who have been missing from the market since mid-2007 but who had been so important to the growth of the last merger wave that started in 2004.

Let’s hope this pace continues and that the small- to medium-size market will kick-start the upper, and more public, M&A market as the year progresses.

M&A Volumes were up, but what’s happened?

Posted on Monday, 8 February 2010. Filed under: Commentary, Mergers |

Typically, the volume of deals in the first quarter of the year are higher than at other times of the year.  In fact, if you look at the largest deals since the mid-1990’s (all around $60 billion or more),over one-third of them were announced in January and almost half in the first quarter.  Obviously, we didn’t  hit the January figure this year, but could still be heading for the first quarter figure if markets settle a bit (perhaps the political interference this year has affected January).  Also, two-thirds of all these mega-deals were announced in the first half of the year. I’ve looked at the figures slightly differently (that is, all deals over £10 billion), and the figures aren’t quite as skewed, but still directionally the same.

The trend in the market had been up.  Intralinks produces an excellent report each quarter (‘Deal Flow Indicator‘) which looks at these trends.  They noted the strength of the market in the fourth quarter of 2009, driven largely by the following factors (taken with their permission verbatim from their fourth quarter report, issued in mid January):

• Continued stability in the equity markets
  –– Dow Jones Industrial Average: Up 7% versus Q3 2009 and 16% for full-year 2009
  –– European Markets: DAX, FTSE and CAC up more than 5% versus Q3 2009 and more than 17% for the full-year 2009
  –– Asia-Pacific Markets: Hang Seng and Nikkei up more than 4% versus Q3 2009; Hang Seng up more than 40% for full-year 2009
  These gains in the equity markets have continued to help narrow the valuation gap that has existed between buyers and sellers and free capital sources globally.
• Increased buying activity in Venture Capital/Private Equity-backed companies as a result of corporations’ stronger balance sheets and increasing cash reserves
• Resurgence in financial sponsor activity
• Thawing credit markets

But there are other factors involved as well, principally from the behavioural side that are holding back a strong resurgence.  More on this in another blog.