S&P expects robust oil, gas merger activity to continue

October 30 - Platts Commodity News - Merger and acquisition activity in the US oil and gas industry will continue to be robust, despite recent low commodity prices, Standard & Poor's Rating Services said.

The ratings company said the declining asset pool, "along with the incentive to maximize returns while markets remain strong, are additional industry drivers," in a report called "Ratings Roundup: For US oil and gas, M&A and softer prices could pressure sector ratings."

Oil and especially natural gas prices have decreased nearly 60% from the start of 2006, and "could pressure credit quality," S&P said.

"High-yield energy and production companies, which typically have high cost structures, limited liquidity, and are often weighted to natural gas, could be at risk if the trend is prolonged," it added.

The energy and production industry "appears solid," although not as active as many participants had planned at the beginning of 2006, said S&P's Paul Harvey. The result could be reduced spending in 2007, if commodity prices continue to show softness, he added.
But Harvey said that given the generally favorable industry outlook, solid forward pricing, and the desire for rapid growth, "robust M&A activity is likely to continue." In addition, acquisitions will remain a key growth engine for the remainder of 2006, and possibly into 2007, he said.

Decimation of large caps by mergers shifts focus to small caps

October 30 - Montreal Gazette - More than 1,200 smaller firms often are under-owned or under-followed by analysts. A combination of mergers and acquisitions plus foreign takeovers during the past year is decimating the market for Canadian large capitalization companies, turning the investor spotlight onto Canadian small caps. Read More.

Strong deal teams/processes = captured synergies

October 18 - Deal-makers, executives, and objective market data agree that many deals fail to deliver expected synergies or value. Reasons vary widely. Sometimes companies enter a deal with unrealistic expectations. Other times complexity runs amok, and management of the deal-making process spirals beyond effective control. Success of defensively or competitively motivated acquisitions can be hard to measure. And, as veteran deal-makers know, a major transaction is a huge distraction. Unprepared, some companies let focus on integration drift in deference to critical day-to-day operations.

A 2006 KPMG/Stanford University M&A forum indicates that strategic players continue to refine their deal-making processes and review the roles and composition of their corporate development departments. Companies such as Hewlett-Packard, Oracle and Sun Microsystems are among those setting new measures to continually improve their transaction processes.

While deal success relies on many factors, research into the leading practices of corporate development groups indicates a strong correlation between a common set of core principles and the statistical probability of achieving transaction success.

Another recent KPMG survey of over 200 Fortune 500 and equivalent companies headquartered in North America and Europe finds those companies with the most successful deal records – those that meet or exceed 75% of their projected transaction synergies – share similar team compositions, deal-making structures and transaction processes. These processes are captured in the following guiding principles.

Balance Roles and Responsibility
Balance is elusive in any corporate endeavor, but nowhere more so than in the inherently disruptive deal management process. Companies that involve corporate development and business-unit personnel evenly during the deal process are 20 percent more likely to achieve deal success than those that involve either group disproportionately. Similarly, companies that retain corporate development involvement throughout the integration are more likely to meet milestones than those in which such personnel are less involved.

Involve Senior Staff
Today’s corporate development departments have a disproportionate balance of junior to senior staff. With deals reliant on timeliness and accuracy, inconsistent results born of inexperience can be costly. Survey data indicates that those companies involving a higher ratio of vice presidents and executives are 20 percent more likely to execute a successful transaction than those comprised largely of analysts and managers.

Leverage Transaction Expertise with Rotations
With M&A now a core process in virtually every industry, successful companies are nurturing a broad base of transaction experience. These companies recruit talent into their corporate development departments, and then rotate them over time into other functions. Management can then tap those employees’ transactions experience if a deal later arises that affects their respective business units. Survey results suggest such rotations help companies achieve greater transaction success.

Oversight Confers Advantage
With complexity rife in any major transaction, corporate development departments are adding structure and oversight to their deal-making processes. Leading companies are making greater use of hurdles and checkpoints to clarify and codify specific phases of a deal. Transaction committees that receive a steady level of corporate oversight are 40 percent more likely to be successful than those who receive too little monitoring or too much hand-holding.

Start Early
Leading corporate development groups recognize that transaction preparation begins very early. Once the strategy committee signs off on the company’s acquisition policies and objectives, the best start crafting internal decision-making documents. The benefit is that corporate development groups then have defined ‘fit characteristics’ with which to select and measure a given target. This focuses time and resources more effectively once a deal does come in the door.

Enlist Corporate Development Support in Estimating Deal Finances
It is important to maximize business unit involvement during the due diligence stage, but the corporate development department should play a central role in preparing financial estimates and forecasts. Companies that use the corporate development department to quantify projected synergies observe higher rates of deal success than those that rely solely on business units or other divisions.

Find the Experts
Where deals are in strategic areas or where the industry or subject matter is technical, leading companies go straight to the experts. Business unit and functional specialists internal to the company can help corporate development departments screen the acquisition target and evaluate the strength of the assets at stake. These experts can form part of the transaction team, and assist with integration planning. External advisors also play a role. Companies that engage consultants, accountants and bankers are more likely to achieve transaction success than those who rely solely on internal resources.

In the end, increased corporate development group involvement is a best practice statistically shown to improve the likelihood of a successful transaction. — Richard Hanley

Richard Hanley is the KPMG Transaction Services Co-Global Lead for the Electronics, Software and Services sector and head of KPMG’s Transaction Services Group in Silicon Valley.

Global Wind Energy Market is Growing Faster Than Other Renewable Energy Markets

October 26 - Business Wire - Research and Markets has announced the addition of “Global Wind Energy Market (2006)” to their offering. Wind energy is among the one of the most effective renewable energy technology to meet the environmental challenges & rising global energy demand. The "Global Wind Energy Market (2006)” report provides research and objective analysis on Global wind energy Industry. This report helps clients to analyze the opportunities, factors critical to the success & potential markets for wind energy. Read More.

Global Technology M&A Deal Value Already Surpasses 2005 Total by $20 Billion, Innovation Advisors Reports

October 16 - Business Wire - Mergers-and-acquisitions activity in the global technology sector already has eclipsed the total deal value for all of 2005 by $20 billion, according to an Innovation Advisors study released today. The investment banking firm serving middle-market technology companies projects that 2006 will be the most active year for technology M&A since the golden days of 2000 – before the dot.com bust. Read More.

The transaction strategy needs to look beyond expected synergies

October 12 - FT.com - Many M&As that look promising on paper fail because they are unable to win the full support of managers. To avoid such failures, Philippe Haspeslagh argues that companies need to develop a clear acquisition strategy and a transparent and fair process for examining it. Read More.

Private Equity Keeps Booming

October 8 - BusinessWeek.com - The latest boom in private equity is more proof, should anyone need it, that the rich keep getting richer. Global mergers and acquisitions by financial sponsors, or private buyout groups, hit $570 billion during the first nine months of the year, up 51% from the prior record set during the first nine months of 2005, according to market researcher Dealogic. Read More.

The right price is key to a good transaction

September 28 - FT.com - Consider the following facts. Over the last three years, in the US, leading institutional investors have spent $500bn on buying out companies, according to data published by Thomson Venture Economics. If 60 per cent is an acceptable level of financial leverage, then these investors have a purchasing power of over $1,000bn. Read More.

Studying M&A targets

October 5 - FT.com - Almost every significant research study argues that acquiring companies lose value for their shareholders when they attempt takeovers. The pain associated with merger activity is well-documented: acquirers see their share prices fall when deals are announced, whereas target company shares rise in value through the purchase premium; and “strategic synergies” mean lost jobs in both companies. Read More.

Which Energy Firms Will Get Taken Out?

October 5 - Barron's Online - With the rising price tag for finding oil and gas along with the difficulty at getting it out of the ground, smaller exploration companies have their hands tied. But larger energy players can buy reserves to grow. And they still have access to cheap capital.

Despite near-term uncertainty created by the big drops in oil and natural-gas prices, this year could rival the more than $160 billion spent worldwide last year on energy mergers and acquisitions. Read More.

Florida M&A demand to grow

September 20 - South Florida Business Journal - A founder and managing director at a Miami investment banking firm has predicted intensified merger and acquisition activity and increased middle-market globalization. Barry Steiner, of Miami-based Capitalink, L.C., said his predictions are fueled by increased borrowing capabilities, more international business activity due to a weakened U.S. dollar and the growth of emerging markets. Steiner, who made his points during a statewide phone conference, Tuesday, with members of the Florida Bar Association, also said low interest rates, increased lender competition and growing interest from private equity groups have created a sellers market among mid-size businesses. Read More.

Private equity firms raise record cash in 2006

October 4 - Reuters - Private equity firms have raised a whopping $300 billion in new funding worldwide this year, easily topping the amount raised for all 2005 and with several mega funds still open, new research shows.

A string of mega fund raisings from some of the world's biggest private equity firms -- including Permira, The Blackstone Group and Cinven - has helped push 2006 to record volumes, already 6 percent higher than all of 2005, when a record $283 billion was raised. Read More.

Business Outlook Survey - U.S. CFOs see trouble ahead

October 1 - CFO.com - Optimism among CFOs has hit its lowest point since the last recession, according to the latest Duke University/CFO Business Outlook Survey. Just 20 percent of finance chiefs are more optimistic about the direction of the U.S. economy, down from last quarter, when 24 percent had a positive outlook. Almost half of those surveyed say they are more pessimistic about the future direction of the U.S. economy. Read More.

Buyouts Keep Getting Bigger As Private Equity Firms Rush To Invest Billions Pouring Into New Funds

October 2006 - Global Finance - The four-year-old boom in private equity investing reached a feverish pitch this summer as firms awash with cash hurried to put some of it to work in corporate takeovers and billions of dollars more poured into newly raised buyout funds.

In the biggest leveraged buyout ever, three private equity firms agreed in late July to take Nashville, Tennessee-based hospital operator HCA private for $21.3 billion of cash and the assumption of $11.7 billion in debt, or a total value of $33 billion. The investor group was made up of Boston-based Bain Capital; Kohlberg Kravis Roberts, or KKR; and Merrill Lynch Global Private Equity; along with Thomas F. Frist, HCA’s founder. The previous record LBO was the $25 billion buyout of RJR Nabisco in 1989. Read More.

Defense, aerospace sectors look strong

October 5 - Associated Press - The aerospace industry has more than two years of growth ahead and while defense contractors face a less certain future, the Pentagon's spending outlook is more favorable than previously thought, Bank of America said Thursday in an analyst note.

It will be more than two years until the aerospace industry encounters a "cyclical downturn," and while Bank of America said it maintained its "Neutral" sector stance on defense, "we are more positively inclined," due to expectations of a larger fiscal 2007 supplemental spending bill, and 4 percent to 5 percent core budget growth over the next two years.

Instead of an 8 percent decline to $107 billion in 2007 supplemental funding, Bank of America now expects an 8 percent increase to $130 billion, with $70 billion already appropriated and $60 billion likely to be requested in February or March.

"Earnings growth into 2008 could turn out to be more healthy than we are currently forecasting, particularly for Army-related contractors," according to the note. But since defense stocks already have done well this year, "we may see some profit taking as we approach the midterm elections."

That potential profit-taking could create buying opportunities for General Dynamics Corp., Oshkosh Truck Corp. and Alliant Techsystems Inc., according to Bank of America.

In afternoon trading on the New York Stock Exchange, shares of General Dynamics dipped 43 cents to $74.37, while Oshkosh added 84 cents to $54.24 and Alliant slid 17 cents to $81.90.

U.S. business optimism down on energy prices

October 5 - Reuters - Optimism about the health of the U.S. economy is down among the nation's small to mid-sized businesses as they have been hit with higher energy prices, a survey on Thursday showed.

PNC Financial Services Group's semiannual survey of small and middle-market business owners showed a third of the 501 respondents were not at all optimistic about the economy going forward. That compares to 23 percent surveyed in April. Read More.

Companies Are Primed For Deals, CFO’s Say

September 29 - NY Times - Morgan Stanley’s annual survey of chief financial officers suggests that companies are getting much more bullish about mergers and acquisitions going into 2007. However, they will face stiff — and maybe insurmountable — competition from financial investors as they seek out takeover targets, according to Henry McVey, Morgan Stanley’s chief U.S. investment strategist. Read More.

M&A Roundup from CFO.com (9/28)

September 28 - CFO.com - E.ON and Acciona and Endesa; Volkswagen and MAN and Scania; Vivdeni Universal and Deutsche Telekom and Polska Telefonia Cyfrowa; Barrick Gold and NovaGold Resources; UCB and Schwarz Pharma; CVRD and Inco; Univision and private investors. Read More.

Bill to tighten foreign takeovers stalls

September 29 - Reuters - Legislation to tighten rules on approving foreign takeovers of American companies has stalled in the U.S. Congress until after the November elections, House and Senate lawmakers said on Friday. Read More.

Russia's Energy Titans Prepare for Acquisitions

October 2 - Dow Jones Newswires - Russia's state-controlled energy giants are gearing up for a new round of acquisitions that could give the Kremlin ownership of nearly half the country's oil production, the highest level since privatization of the Soviet industry began more than a decade ago. Read More.