The M&A Beat: January 30, 2008

January 30 - Blogging Buyouts - Maybe the U.S. is heading into a slowdown, and maybe private equity and traditional M&A has been slowing down in recent months. But there are many deals still pending, and regardless of the economy the temptation for consolidation and acquisitions is just going to be too great for nothing new to occur in this space. Below are some snippets from many deals going on in recent IPO's, M&A, private equity, and more. Read More.

Carlyle chairman embraces deal slowdown

January 30 - Financial News Online (U.S.) - The chairman of one of the world's largest alternative asset managers has welcomed the current slowdown in deal activity as a correction not a crisis and expects the driving forces behinds private equity's growth over the past 20 years to continue.

Louis Gerstner, chairman of The Carlyle Group and former chief executive of computer maker IBM, credit card company American Express and tobacco-to-food conglomerate RJR Nabisco, said: "We are in a welcome period for private equity. Capitalism is not a steady state but goes to extremes and...after excesses have built up...we needed to see a correction. The media and government might have converted this state to a 'crisis' but it is not that." Read More.

For private-equity firms, it's no longer a done deal

January 28 - USA Today - Private-equity buyers didn't see a company they didn't want to own last year. Now, some don't want to see the ones they agreed to buy.

Amid a credit crunch that makes it harder for private-equity firms to borrow money needed to pay for takeovers, a weaker economy and other concerns, some deals are stalling.

Alliance Data said Monday that its $6.4 billion buyout by private-equity firm Blackstone may not proceed. Also Monday, Sallie Mae, the nation's top student lender, said it's giving up on collecting a $900 million fee owed by J.C. Flowers, ending a dispute started when the private-equity firm pulled its $25.6 billion buyout in December. Read More.

Does the crunch mean M&A is dead and buried?

January 28 - Telegraph (U.K.) - Looking out of their windows across London's grey skyline, investment bankers are now wondering where their next deal will come from.

With both debt and equity markets in chaos, the start of 2008 is a far cry from the heady days of early 2007, when top financiers were cooking up bids for some of Britain's largest companies and confident management teams and private equity dealmakers were all too eager to press the red button.

As world stock markets tumbled at the beginning of last week, "uncertainty" had become the vogue word among the City's top dealmakers. That does not bode well for the mergers and acquisitions industry, which thrives on the confidence of company boards to sign off on a deal. Read More.

New BCG Survey-Based Report Highlights the Risks to Successful M&A in Rapidly Developing Economies -- and How to Overcome Them

January 25 - Boston Consulting Group - Companies making acquisitions in rapidly developing economies (RDEs) are twice as likely to generate superior shareholder returns -- at least initially -- as companies that make acquisitions in both developed and developing economies. But in order to succeed, companies need to be aware of four key risks before any transaction is completed, according to a new report by The Boston Consulting Group (BCG) -- "Eyes Wide Open: Managing the Risks of Acquisitions in Rapidly Developing Economies" -- which is based on a survey of executives with acquisitions experience in 30 RDEs.

These risks are a lack of information about the market and the target (cited as a significant challenge by 68 percent of executives in BCG's survey), regulatory pitfalls (63 percent), limited deal structure options (26 percent), and the complexities of dealing with the "softer" human and cultural issues in RDEs. Read More.

M&A: Deal frenzy shows few signs of cooling off

January 24 - Financial Times (U.K.) - As investment bankers in India returned to their offices in India’s financial capital, Mumbai, after Christmas and the New Year, they must have suffered from déjà vu.

The New Year started as the old one ended – with a frenzy of deal-making by an Indian corporate sector hooked on exponential growth, capital-raising and overseas acquisitions.

In the first few days of the New Year, the Tata group announced it had been named as the front-runner in bidding for the $2bn takeover of Ford’s Jaguar and Land Rover marques.

This was followed within days by the launch of India’s largest initial public offering, the $3bn listing of Reliance Power, which sold out within seconds of opening on January 15. Read More.

Private equity firms see light amid the gloom

January 24 - FT.com (U.K.) - The gloom spreading among the biggest private equity firms is misplaced, as the current market turbulence is likely to produce as many deal opportunities as difficulties, according to several of the UK’s smaller buy-out firms.

A stock market slump will cut the price private equity has to pay for companies, said the heads of Dunedin, PPM Capital, Matrix Private Equity Partners and Close Growth Capital.

“The UK is pregnant with value,” said Bill Crossan, head of Close Growth Capital, which targets buy-outs worth £5m-£30m ($9m-$58m). “I have been through three really bad recessions and if I have learnt anything, it is that now is the time to invest.” Read More.

Appetite remains for Canada mining M&A -analysts

January 22 - Reuters - Canadian metals producers may delay launching takeover bids until the current market turmoil has subsided, but analysts say there is still M&A demand in the sector despite weaker stocks and tight credit conditions.

The analysts say that even though higher debt costs could linger for some time, cash and stock deals could still go ahead, particularly as gold prices sit near record highs, and base metals prices have been steady despite a steep slide in several mining stocks. Read More.

Dallas-area small businesses aren't feeling downturn

January 23 - Dallas Morning News - While uncertainty and weakness rock equity markets around the world, smaller companies in North Texas are taking the turmoil in stride.

"Fortunately, we're in Texas," said Alex Vantarakis, president of the Vant Group, which handles mergers and acquisitions between companies with $1 million to $20 million in sales.

"We missed the boom," he said, "and now we're missing the bust."

For many small businesses in the region, a still-buoyant Texas economy is supporting a positive outlook for 2008. Read More.

Focus to shift to raw materials in '08 steel M&A

January 17 - Reuters - Steelmakers could focus their acquisition sights on raw materials in 2008, in a bid to reduce costs which are set to climb on the back of higher iron ore prices, a senior industry expert told Reuters this week.

The steel industry is bracing for a sixth straight year of iron ore price hikes in 2008 as annual contract talks between the mills and top iron ore producers Vale, BHP Billiton and Rio Tinto have begun.

The expectations in the market point to a 30 percent rise in the price of iron ore, a key raw material used to make steel, while industry sources in Australia have said Vale has offered an increase of 70 percent over current term prices. Read More.

BAIRD’S INVESTMENT BANKERS SHARE INSIGHTS ON 2008 M&A ACTIVITY

Middle-market M&A to remain stable despite market turmoil, private equity to face new competition, and India to aggressively drive cross-border buyouts in ’08

January 17 - Wisconsin Business - The volatile U.S. mergers and acquisitions climate in 2007 gave many investors a bumpy ride. In the first seven months of 2007, the dollar volume of announced transactions was up 44 percent from the same period in 2006. In those seven months, dollar volume reached a high of $1.2 trillion, averaging $175 billion each month. But from August to November 2007, dollar volume slumped to just $248 billion for the four-month period, averaging only $62 billion a month.

What’s in store for merger and acquisition activity in 2008? Three managing directors at Baird's Investment Banking group – Chris McMahon, Brian Doyal and Chris Coetzee – share their thoughts.

Middle Market Will Remain Largely Insulated from Economic Turmoil

While there’s only one economy, various sub-segments of the capital market exist. The middle market is one sub-segment that has escaped much of the downturn from credit market turmoil, according to Chris McMahon, Managing Director and Head of U.S. Mergers and Acquisitions at Baird. Read More.

Global PC Market Grew 13.4% in 2007: Gartner

January 17 - InternetNews.com - Worldwide PC shipments rose 13.4 percent to 271.2 million units in 2007, according to preliminary results by IT consultancy Gartner.

The group also found that Europe, the Middle East and Africa collectively led the way -- ahead of Asia, itself a booming market. During fourth quarter alone, global PC shipments rose 13.1 percent over the same period in 2006, Gartner said.

It was boom times for a number of the top-tier vendors -- but not all. In 2006, Hewlett-Packard finished nearly in a tie with Dell for the top spot, with 38 million units sold and 15.9 percent of the market each. Read More.

Mining M&A frenzy to continue

January 16 - National Post (Canada.com) - The only certainty in an uncertain market is that the wave of mining takeovers will continue. That's the opinion of mining analysts at Citigroup Global Markets, who cite a number of reasons why: soaring cash balances, few reinvestment opportunities, frictional barriers to new capacity, and aggressive forays by sovereign investors.

They calculated that mining companies have more than US$300-billion available for M&A, about half of which would come from borrowings. That alone is about 36% of the entire sector size. Read More.

Banking M&A Likely to Decline in 2008

Analysts See M&A Volume Among Banks to Decline in 2008 Amid Credit Concerns

January 15 - Associated Press - Fewer buyers and uncertainty surrounding credit markets will likely lead to a decline in bank consolidation in 2008, analysts said.

"There will very likely be a decline in deal activity simply because banks have fairly significant credit concerns," Keefe, Bruyette & Woods Inc. analyst Robert Hughes said. Banks are struggling to understand their own credit issues, so they are unlikely to take others as well, Hughes said in an interview.

A smaller number of bank chief executives believe merger and acquisition activity will increase in 2008 compared with 2007, according to a UBS study. Read More.

Plenty of possible M&A in forestry sector

January 14 - National Post (Canada.com) - Call it green or call it black – Richard Kelertas thinks you should be able to find some colour other than red in forestry stocks this year.

Sino-Forest Corp., Catalyst Paper Corp. and TimberWest Forest Corp. top the list of buys for 2008 at Dundee Securities. The analyst’s top sells are Fraser Papers Inc., Tembec Inc. and AbitibiBowater Inc.

“Our current picks favour timber/log and private timberland since markets are currently experiencing uncertainty and volatility, Mr. Kelertas said in a recent research note. “With the steady and reliable returns that private timberland and log/plantation development provides investors over time, we are quite comfortable with our call.” Read More.

What to Expect As Deal Makers Revise Strategies

January 14 - WSJ - What separates a good year in mergers-and-acquisitions from a bad one? By the Pavlovian measure of Wall Street, it is simple: The more deals, the better the year. But 2007 revealed the fallacy of this approach. Buyers gorged on cheap credit, overpaying along the way. Some raced to rip up transactions signed months earlier. More deals, more problems.

In this piece, the second annual M&A Buyer's Guide, it is worth remembering the distinctions between the Street and the rest of us. Here are four major themes for the year ahead, all of which show that a good year or bad... Read More (subscription required).

Outlook 2008: Three Ways to Profit From A Takeover Market That’s Alive and Well

January 14 - Monday Morning - Elvis might be dead. But the mergers and acquisitions (M&A) boom certainly is not. While it’s an admittedly Contrarian stance, I’m convinced the deal-making environment will be even better in 2008 than it was in 2007.

That’s significant, considering that the latest figures from Thomson Financial confirm that 2007 - despite the gummed-up credit markets - was the best year ever for worldwide M&A deals. Total deal volume checked in at $4.5 trillion, up 24% from the previous high-water mark set in 2006. U.S. deal volume also hit record levels last year, jumping 9% to reach $1.61 trillion.

To understand our optimism, let’s examine the catalysts at work in the New Year. There’s a strong incentive to tune in and pay attention: If we’re right, investing in eventual takeover stocks nets investors an average single-day gain ranging from 43.5% to 53.7%, according to recent data from FactSet MergerStat LLC. Read More.

M&A Accounting Standards Revamped

January 11 - Web CPA - The International Accounting Standards Board has issued a revised version of its standards for accounting for business combinations such as mergers and acquisitions, in coordination with the Financial Accounting Standards Board, in a move that will highlight the expenses of business combinations that used to be considered assets.

While FASB has not yet issued its own revised standards, they're expected to closely resemble the new ones released by the IASB. The two boards are working together on a convergence process that will ultimately unite International Financial Reporting Standards with U.S. generally accepted accounting principles.

"Investors and their advisers have a difficult enough job assessing how the activities of the acquirer and its acquired business will combine," said IASB Chairman Sir David Tweedie in a statement. "But comparing financial statements is more difficult when acquirers are accounting for acquisitions in different ways, whether those differences are a consequence of differences between U.S. GAAP and IFRS, or because IFRS or U.S. GAAP are not being applied on a consistent basis." Read More.

Bankers See Modest Growth in Tech M&A for 2008

January 9 - Gigaom - Bankers’ optimism about technology M&A is starting to wane, according to a newly issued report from tech research shop The 451 Group. The firm’s analysis calls for “slowing expansion” in 2008, due primarily to the credit crunch, which is having a dampening effect on the number of leveraged buyouts sought by private equity firms.

While two-thirds of bankers expect an expansion in their deal flow in 2008, a mere 13 percent (or four times as many as last year) are forecasting a decline in their business. And although corporate buyers still plan on picking up customers and new technology through acquisitions, with 45 percent expecting to increase their M&A activity, prices are likely to drop. For second-tier and me-too startups and their venture investors, that means the end of the Web 2.0 gravy train could be fast approaching. Read More.

End of '07 saw increased M&A, IPO movement

January 9 - Massachusetts High Tech - Two Massachusetts technology companies were among the largest venture-backed liquidity deals during the fourth quarter 2007, nationally the most active fourth quarter since 2000, according to a new report by Dow Jones VentureSource.

The July acquisition of Cambridge-based Alantos Pharmaceuticals Inc. by California-based giant Amgen Inc. for $300 million was the eighth-largest merger and acquisition deal in the nation. At the same time, Burlington-based Nuance Communications Inc.'s $293 million purchase of Woburn's VoiceSignal Technologies Inc. in August ranked No. 10, Dow Jones reported. Read More.