Wednesday, July 05, 2006

M&A records set this year Merger and acquisition activity worldwide is set to reach $1,930bn (£1,055bn) for the first half of the year, marking the highest half-year volume on record and surpassing even the heady days of the dotcom boom. That's according to an article in the Financial Times ("M&A fever surpasses dotcom era", 6/30/06). The rate of deals goes against the expectations of many analysts, who thought that they never would again reach 200-2001 levels. It's due to a number of factors. There's the strong fiscal health at many of the biggest companies in the world. Many are sitting on large piles of money, according to the article. And as we have seen, many recent deals have been challenged or refused, so bidding wars have ensued, knocking up the value of the deals. Antitrust enforcement has retreated both in the US and in Europe. And even the national protectionist traditions of France, Italy, Japan, and other countries have given way. There's also a restlessness in the investor community, the factor that turned the Arcelor deal and others against management wishes. Add to that the technical resources that allow big corporations to track assets globally with ease. Add to that a proliferation of high-prices equity buy outs, which reached a record of 19% of all M&As in the first half of the year. Guiding the deals are Goldman Sachs, JP Morgan, Citigroup, and Morgan Stanley, a nice little oligopoly of their own. And this is by no means the end, according to a Wall Street Journal article ("Blizzard of Deals Heralds an Era Of Megamergers", 6/27/06) This is fairly early in the wave," said Sara Moeller, a finance professor at Wake Forest University who has studied the previous cycles. In some important ways, however, things are different this time around. Unlike in the late 1990s, companies have generally exercised discipline when pricing their corporate prey. This year they are offering takeover premiums of about 20%, the lowest level of the past 10 years. Moreover, antitrust regulation has slackened considerably, clearing the way for previously unthinkable combinations that allow companies to slash costs, such as appliance maker Whirlpool Corp.'s recent purchase of rival Maytag Corp." As uncanny as it seems, get ready for even more wheeling and dealing and even tighter oligopolies in almost every industry. 7:39:38 PM

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