End of the M&A bubble?
That's no secret. Over the lat month, the merger and acquisitions party has come to a screeching stop. Even seemingly done deals are unraveling. News it items like the "discussions" going on between online brokers E-Trade and TD-Ameritrade, barely worth reporting on a few weeks ago, is a leading story, as the desire to breathe some life into the deflated acquisitions market grows.
The Financial Times, in an article entitle "Lights go down on the acquisitions party" (8/22/07) notes the trend: "At the end of July, the total value of global M&A was $559bn, compared with $235bn for the same period last year, according to Thomson Financial, and most bankers knew such a frenetic pace of activity could not continue for long. But while it is clear that private equity deals will not be done for at least four to six months, the outlook for strategic transactions is much less straightforward."
Indeed, the market was wavering even a few months earlier before the big freeze, according to the Financial Times.
One big negative factor was the increasingly excessive payout companies paid out to buy out the stock of another company. Not the tradition 10% or #0%, but premiums like 35%, even 50%, as the need to close a deal, any deal, was paramount, and there was always a rival bidder or three with deep pockets.
Then, too, banks were willing to finance any deal, however unwise. Again, if one bank refused, there was always a rival who would make the deal and the losing bank would feel like the opportunity was missed. The credit crunch in subprime mortgages made bank realize how vulnerable they were, and they backed away.
Finally, CEO confidence was on the wane for the past few months, according to survey data. The article says: "Strategic M&A requires chief executive confidence in respect of their own earnings, the earnings of the target and to see through the volatility in capital markets and that isn't there at the moment," said Philip Noblet, head of M&A, Europe, Middle East and Africa at Merrill Lynch. "The biggest issue for chief executives considering a deal is that they will not want to be seen as the guy who overpaid for an asset in this redefined market," Mr Noblet added.
Yet all is not lost. Further banking consolidation may be in the works in Europe, according to the article, as they try to cover risk. Plus, those who do have the money and the resolution to make a strategic bid may be able to do so in the assurance that a wild bidding war is unlikely to break out, so the premiums might be somewhat saner.
8:10:57 PM 
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