Archive for April, 2010

Football team acquisitions in the UK

Posted on Friday, 23 April 2010. Filed under: Commentary |

Fascinating article — especially at this time of the year when the European football season is coming to an exciting close — about the M&A deals in involving European football clubs.  Liam Vaughan has written an article in the Financial News about this:  ‘Football deals reach fever pitch’ (I’ve provided the link to the article, although it is available to subscribers only, so apologies to those who cannot see it). 

These deals certainly do attract media attention.  Focus is on the UK.  The battle for the world’s most recognised sports franchise, Manchester United, remains uncertain as the Red Knights group (investors including Goldman Sachs’ chief economist Jim O’Neill and advised by Nomura) target the debt-ridden club currently owned by Malcolm Glazer, who only purchased the Manchester United back in 2005 in a protracted takeover that had started with his purchase of 2.9% of the then-public club in March 2003.

The soon-to-be relegated Portsmouth Football club has been rescued earlier this year (Saudi investors, so once again from outside the UK), and in February two investors bought West Ham United.  In early April, Lady Nina Bracewell-Smith appointed an advisor (Blackstone) to find a buyer for her 16% stake in Arsenal (which might have been worth more last week when Arsenal had a better shot at the top of the Premier League, but they are still certain of qualifying for the Championship League, so no problems there.  Lastly, the US owners of Liverpool Football Club (who have not qualified for the Championship League this year) are also apparently for sale.

Should this matter to the fans?  Clearly Roman Abramovich’s purchase of Chelsea in mid-2003 has helped that club.  Glazer’s debt-laden purchase of Manchester United hasn’t stopped them from raising trophies, even after he sold Ronaldo reputedly to raise cash.   Not that these purchases aren’t very emotional for the fans, but a steady owner does help to add some stability at the top and avoids distractions such as Portsmouth has had. 

It is certainly well known that few people ever make money on buying sports franchises (George Steinbruner with the New York Yankees being a possible exception, or Glazer with his purchase of the Tampa Bay Buccaneers before he ever entered the English football market).  As Liam Vaughan points out, these clubs may be coming to the market now as they were private equity or financial deals at the height of the market, and the owners now need to find an exit as they seek better investments. 

What these deals certainly do is provide lines and lines of copy in the national papers and the 10 o’clock news.  Well, that’s something, at least.

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M&A Forecast for 2010 — update

Posted on Monday, 19 April 2010. Filed under: Commentary, Mergers |

Well, we’ve got more than one quarter of the year gone.  Is it really possible to see more clearly how 2010 will develop for the M&A markets?  I think so, and one reason is the behavioural aspects of the market that cause it to be ‘sticky’, as discussed several weeks ago in an article I wrote for the Financial Times entitled  ‘A tough challenge for M&A markets‘.  There is a slowly growing confidence in business, bouyed by the rising equity markets, but for M&A deals to be announced, an even greater level of confidence is required.  This will take time.

But it is useful as well to look at the activity for the first quarter.  I believe that it demonstrates that we have bottomed out.  The annualised volume for the first quarter globally for announced deals is still at around $2.2 trillion, which is the level of 2009.  First quarters, as we have shown before, tend to be the strongest quarter (see our posting on 8 February 2010) and in fact represent up to 50% of the mega-deal (but not total) volume.  We’ve not seen too many of these mega-deal announcements, which just confirms my belief that the confidence needs to return first, especially for those huge headline deals.

Nevertheless, the people I talk with are talking up the backlog of deals.  So there’s a lot of planning for the right moment.  One of my favourite reports on trends in the market is Intralinks‘ quartely Deal Flow Indicator.  They note that March 2010 deal flow was up 25% over February which itself was up 5% over January.  The trend is thus right.  Except for Europe, all regions saw an increase.  Notably, the deal flow level in Q1 2010 was at the same level as their benchmark Q1 in 2008.

Another indicator of growing confidence in doing deals is the increased percentage of cross-border deals. In a study (‘Deal Makers Continue to Outperform the Market’) conducted by Cass Business School for Towers Watson, it was reported that cross-border deal activity rose to 36% of all completed deals in the first quarter, which is up from 24% a year ago.  These deals are more complex and typically more difficult to get approval, and thus an increase in this activity does indicate confidence.  Another positive trend is the re-emergence of private equity buyers, albeit still no where near the level of activity seen several years ago.

Net-net?  I see the markets staying at around this level through 2010.  That in and of itself is an accomplishment as many were looking for a double dip in 2010.

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Politics and M&A

Posted on Friday, 16 April 2010. Filed under: Commentary, Mergers |

There’s a proposal in the UK to revise the rules governing public takeovers.  This has been prompted by the takeover of Cadbury by Kraft, but has been bubbling under the surface for years and gains attention each time there’s a large, contested offer.  The forthcoming election has given the proposals new life as well.

There are certainly arguments to be made to make some tweeks to the takeover code, but the overhall suggested by some of the white paper ideas seems to many to be the proverbial ‘meat cleaver’ approach where a paring knife would suffice.

What’s been suggested?  According to Financial News and discussed in an article entitled ‘M&A industry gears up for changes to the Takeover Code’, the full list is the following:

  • Raising the threshold for acquirers to secure ownership of a target from 50% to 66.7%
  • Forcing companies involved in a transaction to disclose the fees they pay their advisers
  • Reducing and formalising the time frame between a bidder announcing its interest in a company and the publication of a ‘put up or shut up’ deadline
  • Halving the disclosure requirement for investors in a takeover target from 1% to 0.5%
  • Restricting voting rights on a takeover to investors who held their position in the target before the announcement of an intention to make an offer
  • Forcing bidders to disclose greater detail how they intend to finance bids and their future plans for the acquired business
  • Forcing institutional investors to make public when they have accepted an offer
  • Forcing target boards to explain in greater detail the reasons behind accepting an offer
  • Making company boards accountable to employees and other stakeholders as well as shareholders.

The reaction in the City has generally been negative.  Although there are always problems arising from some parties in every contested M&A deal, the general feeling is that the current system works, it is well known and investors are certainly familiar with how the takeover code operates.

It is unlikely anything will change soon in any case.  First, the aforementioned election makes any change impossible until resolved.  Second, unless there’s another very large contested deal in the UK where the target is perceived by many to be a ‘national asset’ such as some considered Cadbury to be, it is likely that this attention by the politicians on takeovers will have been fleeting as they move on — and properly so — to other issues in the economy that demand immediate attention, which this issue does not.

Where will it end up?  I believe that there will be some tweaking at the edges.  And by-the-way, this happens all the time.  Each year, the Takeover Panel issues consultation papers, and since 2000, this been as high as five (and each individual paper may have multiple suggestions).  Most are not as radical as the above changes such as increasing the ownership change threshold to 66.7% or prohibiting certain shareholders from voting on the change of control, but it is unlikely those big changes would be approved anyway.

Note that some of these suggestions (such as the final one) would move the UK more in the direction of Continental European companies in terms of their accountability, and another suggestion — greater disclosure of fees, for example — are clearly populist suggestions of a political nature.

Debate should be encouraged at all times.  But ‘if it ain’t broke, don’t fix it’.  At the moment, it is my opinion that the way that mergers and acquisitions proceed in the UK currently works — and works well most of the time both for investors and boards.  When it doesn’t work, there is recourse through the Takeover Panel, the Stock Exchanges and the courts.  (Of course, there’s fall-out for employees (see my other blog on how M&A deals cause redundancies) and other stakeholders, but those groups also have recourse.)  However, unless the new government in May wishes to look at the entire way that companies operate in the UK, focus shouldn’t be only on one aspect of their operations (M&A).  But let’s discuss…

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