Private Capital Symposium: DLJ's Rattner on creating value

May 28 - DealScape Blog (The Deal) - At The Deal's Fifth Annual Private Capital Symposium Steven Rattner, managing director of DLJ Merchant Banking Partners, explained why it is easier to create value in middle market companies.

There is a difference in creating value from middle market deals to large cap deals, he said. "When you buy a 20 billion market cap company. Those companies have their own languages and religions...In today's type of market's where it is about creating value in the companies you own, it is easier to create that value in middle market companies," Rattner explained. Watch the video.

Report: M&A seen strong among private companies

May 23 - Corp DealMaker Blog (The Deal) - The folks over at Grant Thornton International Ltd. put together an international business report, entitled titled Mergers and acquisitions: Opportunities for global growth. The report confirms what we've been hearing for months: that the recent tightening of lending policy and an uncertain economic outlook has had an impact on transactions worldwide at the top end of the market.

But they also found that privately held businesses in the BRIC economies, North America, mainland Europe, the U.K. and Ireland, and the rest of the world are confident about their prospects for M&A over the next three years. Privately held businesses in China were the most bullish, with 67% predicting deal activity over the next three years, followed by Brazil at 64%. Forty-eight percent of private U.S. businesses expect to do deals in the time period. Read complete report.

After the Deluge: A Good Time to Buy?

May 19 - DealBook blog (N.Y. Times) - Ever since the end of the buyout boom last summer, many pundits and financial players argued that the mergers and acquisitions game didn’t have to end. Strategic players could step into the void, buoyed by their voluminous cash holdings and unhindered by competing private equity firms.

Now a new study, conducted by the consulting firm Towers Perrin and the Cass Business School in London, that will be released Tuesday has found that doing deals in the “post-peak” period could yield mergers that created a significant amount of value. That would mean, well, this year.

The study examined 38,122 deals, seeking to compare the M&A cycles of the late 1980s and the late 1990s to today. Among the findings gleaned from the data was that deals struck in the post-peak years of those previous cycles, 1990 and 2000, created more value for shareholders, especially compared to mergers struck at frothy heights only a year before. Read More.

M&A Deals in the Industrial Manufacturing Sector Drop

Deals declines 46% from first quarter of 2007

May 21 - IndustryWeek - A total of 39 deals (disclosed value at or above $50 million) were announced in the first quarter of 2008, a 17% decline from the 47 deals announced in the first quarter of 2007, according to PricewaterhouseCoopers. Total deal value for industrial manufacturing transactions totaled $7 billion, a 46% decline from the $13 billion announced in the first quarter of 2007 and a 78% decline from the $31 billion announced in the first quarter of 2006. At this rate, projected total deal value for 2008 is set to fall far short of the levels set in 2007 ($88 billion) and 2006 ($92 billion). Read More.

The changing M&A game

May 20 - Financial Post (Canada) - Despite the slowdown in M&A activity, we are not at the beginning of a steep downturn in global dealmaking, according to a new report. However, the landscape has changed dramatically.

Relatively calmer financial markets have coincided with a surge of activity in recent weeks: Mars Inc’s US$23-billion purchase of Wrigley Co. to create the world’s largest confectionary company; Westpac Banking Corp. Ltd.’s US$17.6-billion bid for St George Bank in Australia; and Hewlett- Packard Co.’s decision to acquire Electronic Data Systems Corp. for US$14-billion. But despite the expected recovery for M&A, it will not look like 2006 or 2007, Citigroup’s global equity strategy team said in a report. Read More.

Study says M&A in 2008 could produce good value

The credit crunch has pounded the merger and acquisitions business this year as the volume of deals has slowed, but a new study suggests that that the deals that do get done this year will likely produce better returns that ones done in previous years.

May 20 - MarketWatch - The study from Towers Perrin and London's Cass Business School analyzes three recent multi-year M&A cycles. It concludes that deals done in the year immediately following the peak year of an M&A cycle produce better returns than those done during the upswing and the peak year.

"This latest research shows that, on average, and based on the last two merger waves, deals done in the year following the peak create more shareholder value than those completed during the upswing and peak years of the wave. It appears that 2007 was the peak year of the current merger wave," said Mark Arian, the co-leader of Towers Perrin's global M&A consulting practice. Read More.

Transportation/logistics M&A not on track to match 2007 levels

May 16 - Stockhouse - Both deal volume and value in the transportation and logistics industry declined during the first quarter of 2008, according to the PricewaterhouseCoopers LLP Q1 2008 edition of Intersections: Global Transportation & Logistics Mergers and Acquisitions Analysis. Global deal activity is not on track to match the levels seen in 2007; however, the 45 deals (worth at least $50 million each) announced in the first quarter is on track to exceed 2006 levels.The credit markets and slowing deal activity in the United States significantly affected deal volume in the first quarter of the year. When excluding deals in which a U.S. entity was the acquirer or target, the number of deals (38 deals) is on pace to exceed both 2006 and 2007 levels (119 and 142 deals respectively), indicating that a concern over an economic slowdown in the United States may be lowering the attractiveness of U.S. targets - as well as the willingness and ability of U.S. acquirers - to make deals, according to the PwC analysis. Read More.

Market Outlook: Composites in General Aviation

One assumption is that aircraft construction is a boom/bust market. But current order backlogs and resulting ramp-ups in production rates indicate that civil aircraft manufacturers are looking ahead with a great deal of confidence. Expected long-term growth in Asian and other developing economies accounts for a large proportion of the recently placed aircraft orders. As a result, many manufacturers already have backlogs amounting to several years of production for popular models. While some observers argue that the aircraft industry, as a result, has entered a “super cycle” or “a bubble,” investment banking advisor Trevor Bohn takes a slightly different view. A vice president at RSM EquiCo Capital Markets, Bohn said at COMPOSITESWORLD Conferences’ 2008 Composites Industry Investment Forum held in February that he preferred to describe the market as “stronger for longer.” With the growing number of aircraft orders and a resulting build up in aircraft delivery backlogs, the market for composite aerostructures in general aviation has been growing rapidly. According to the General Aviation Manufacturers Assn.’s recently released 2007 year-end statistics, the industry grew 16.5 percent to a record $21.9 billion in aircraft shipments, compared to 2006. Read More.

M&A Deal Activity in Industrial Products Slows

May 14 - Modern Distribution Management - Weakness in the U.S. economy continues to affect M&A deal activity and value in the industrial products sectors, specifically industrial manufacturing, chemicals, and metals, according to a series of PricewaterhouseCoopers LLP first quarter M&A reports. While deal activity remains steady, deal volume and value is not on pace to exceed 2007 levels; however, the number of deals announced during the quarter is on track to meet or exceed 2006 levels.

The slowdown in the pace of large deals announced in the first quarter is a direct reflection of the difficult financing environment. Only the transportation & logistics sector is on pace to exceed the level of large deals in both 2006 and 2007. Deal interest for targets in Asia has been particularly strong during the quarter across each subsector. Additionally, the weak U.S. dollar is driving the increased interest in U.S. targets by cross-border acquirers. Read More.

India's Global M&A Boom

Indian corporations, established at home and seeking new markets, are flush with cash and spending it abroad. But have they gone overboard?

Bharti Airtel, India's largest telecom player, is in the midst of talks to acquire a 51% stake in South African telecom major MTN in a deal that could be worth $20 billion. It's unclear whether Bharti's bid will succeed, but plenty of other Indian companies have been on a global shopping spree. On May 1, Essar Steel Holdings announced its third overseas acquisition in a year—the Nasdaq-listed Esmark for $1.1 billion. In March, Tata Motors acquired Jaguar and Land Rover from Ford. And investment bankers say there are 10 more acquisitions by Indian companies in the pipeline over the next six months. Read More.

Prices hold firm for government M&A deals

May 12 - Washington Technology - Since 2004, the price-to-performance multiples of publicly traded government technology services companies have trended downward, while the valuations of mergers and acquisitions have held their ground. Is this an anomaly, a reflection of the — until recently — easy money market conditions, or are there other factors at work? Just as important, is it rational, sustainable and likely to continue through this year and the next?

Although these questions were raised in 2007, the credit market turmoil in the past six months has prompted renewed examination of expected trends in transaction volumes and pricing levels. The impact of equity prices and debt market trends is not uniform. Read More.

M&A Lessons Learned

Supply chain management is the key to realizing merger and acquisition synergy savings

May 13 - Supply Chain & Demand - Oftentimes the motivations for a merger and/or acquisition are the savings and cost synergies that can be generated from the increased scale and overlapping operations of the combined companies. These synergies generally come from two areas: internal headcount and external vendor spend. Due to the supply chain management organization's focus on optimizing vendor relationships and internal spend patterns to reduce costs and increase productivity, SCM is well-positioned to lead the external vendor spend effort with a structured synergy capture program to maximize savings.

Embarking on a merger or acquisition without a strategy or, better yet, a formal program to realize the potential synergies as effectively and efficiently as possible can ultimately lead to failure. Because the synergies are crucial to the future viability of the combined company, the respective SCM organizations should have a leading role in identifying the synergy savings required for the merger or acquisition to succeed. Read More.

India comes of age in M&A, but not always smooth

May 9 - Reuters - Bharti Airtel's overtures towards South African telco MTN Group, which could lead to India's biggest foreign takeover, are a sign that big Indian firms are hungry for deals and undaunted by a global credit crisis that has dented M&A activity around the world.

While Bharti shares have been hit as analysts query the mobile firm's ability to fund a deal that could top $20 billion, few doubt there will be more acquisitions by increasingly outward-looking Indian firms.

"Indian corporates have come of age," said Pramit Jhaveri, head of investment banking at Citi India, which advised Tata Motors on its $2.3 billion buy of Ford Motor's Jaguar and Land Rover brands in March. Read More.

The State of Medtech M&A

Prolific mergers and acquisitions activity in 2007 yields to a more uncertain climate in 2008.

The year 2007 ended amid uncertain economic conditions, precipitated by the subprime and structured-loan debacles. The tightening credit situation will affect leveraged transactions such as private equity deals most immediately, as lenders and principals will require a higher burden of proof before permitting a deal to move forward. But the impact of the credit squeeze will extend well beyond private equity deals to affect the overall interconnected world economy. Although the aphorism that healthcare is recession-proof still applies, prospects for a particular sector, company, or deal must be evaluated according to their specific circumstances.

In general, 2007 mergers and acquisitions activity in the diagnostics and medical device industries reflected complementary moves in which acquirers sought businesses that dovetail with their core product lines and infrastructure, as opposed to acquisitions driven by the need for diversification. Many acquirers looked to purchase platforms, technologies, and organizations that address markets expected to grow significantly in the future. Particularly hot sectors include diagnostics, orthopedics, spinal and cardiovascular products, and home-care devices, among others. Read More.

Health-Care M&A: Private Equity Taking Its Medicine

May 7 - Deal Journal Blog (WSJ) - Can private-equity money help cure the ills of the pharmaceutical industry?

The ancient Greek word “pharmakon” referred both to the illness and its cure, and that duality captures the dilemma the pharmaceutical industry is confronting now: Many companies are facing a host of patent expirations on cash-cow, brand-name drugs at the same time that the pipeline of new blockbuster drugs has dried up. That means the industry needs money to reinvest into drug development.

One way to raise that money is by divesting businesses that aren’t core. And lo and behold, private-equity firms that can’t find the debt to make giant acquisitions are very willing to pop some of these smaller pills. Read More.

Private equity dealmakers still alive and well

Smaller deals, amassing cash part of the new landscape

May 7 - TwinCities.com - Just because private equity firms haven't had any big deals to talk about lately doesn't mean they've gone away.

In fact, two of the Twin Cities' biggest private equity firms, Goldner Hawn and Norwest Equity Partners, say they expect to raise about $1.5 billion for two new equity funds by the end of the year. Norwest Equity Partners also is putting together a $500 million mezzanine fund.

And executives of the firms say they are itching to spend that money, even if some of the rules of the game have changed. Read More.

Carlyle Group's David Rubenstein: 'The Greatest Period for Private Equity Is Probably Ahead of Us'

May 6 - Knowledge@Wharton - David Rubenstein is co-founder and managing director of The Carlyle Group, the Washington, D.C.-based private equity firm with more than $70 billion in assets under management. In March, members of the Wharton Private Equity Club interviewed Rubenstein about the ongoing credit crisis, the industry outlook, the rise of sovereign wealth funds, and why private equity is "one of the greatest exports of the United States." An edited version of the conversation appears below. Read Q&A. (Subscription required)

Video: Middle-market matters

May 5 - DealScape Blog - Today, the middle market is a robust, fertile area of dealmaking in a veritable desert of megadeals. A year earlier, before the credit crunch pinched the ability of buyout firms to execute deals over $1 billion, a panel at The Deal's 2007 Private Capital Symposium discussed how most firms had abandoned the middle market to niche players.

Now that the credit crunch has put a stop to the parade of megabuyouts, the middle market is once again a key target area for deep-pocketed financial buyers looking to escape the worst of a tight debt market. At The Deal's Fifth Annual Private Capital Symposium on May 14, the climate for deals in the middle market will be the subject of a panel discussion. With the effects of tight credit starting to spill into midmarket deals, the panelists will consider the current climate, as well as key issues such as where the credit crunch is biting hardest and how middle-market lenders are reacting to the contraction of the debt markets. Read More and Watch Video.

Cement industry to witness dip in M&A valuation

May 5 - The Financial Express (India) - India's cement industry, that is currently undergoing a consolidation and market leadership phase, will now witness a fall in the valuations of M&A deals. With cash flows at an all time high and capacity utilisation bursting at the seams, the cement industry, that has witnessed transactions happening at higher valuations, will now see a dip of 15% to 20% in M&A valuations going forward, say experts.

Says Sourav Mallik, associate director- investment banking at Kotak, "The cement industry is witnessing a fall in earnings and valuations. More M&As in the sector will now be driven by a strategic desire to exit rather than a financial compulsion to restructure." Read More.

Private Equity Gets Buzzed on Winery Investments

May 2 - Deal Journal Blog (WSJ) - LBO Wire reporter and Deal Journal contributor Matthew Monks files this sideways look at private equity firms’ interest in wine.

Private-equity firms are pursuing an insouciant investing interest, with a hint of earthiness.

They’re looking at wineries. Over the past month, at least two buyout firms have raised money to invest in family-owned wineries. Vinum Capital, of San Anselmo, Calif., is raising a $250 million fund to acquire as many as 10 wineries on the West Coast. San Francisco firm Bacchus Capital Management LLC is also sitting on an undisclosed amount of capital that “is ready to make investments,” in wineries, it said. Read More.

Citi loses India head of M&A to Carlyle

Citi's head of M&A in India, Devinjit Singh, quits after nearly 20 years with the bank to join Carlyle's buyout practice.

May 2 - FinanceAsia.com - Citi India veteran Devinjit Singh, who currently heads the M&A business at the investment bank, is moving to the buy-side to join Carlyle's buyout practice. Singh, who has been a managing director at Citi since 2007, joins Carlyle at the same level and will report to Rajeev Gupta, who is the head of Carlyle's buyout business in India. Gupta is himself a former investment banker and joined Carlyle in 2005 from DSP Merrill Lynch where he was head of investment banking. Carlyle also has a growth capital practice in India.

Carlyle currently has two buyout funds in Asia – Carlyle Asia Partners I and II with $750 million and $1.8 billion under management respectively. The private equity firm was in the market earlier this year to raise its third fund, Carlyle Asia Partners III. Read More.

M&A Slowdown Hits the Middle Market

May 1 - DealBook blog (N.Y. Times) - Everyone knows that the pace of mergers has slowed down dramatically since the onset of the credit squeeze. With a few notable exceptions here and there, mega-deals in particular seem to have disappeared.

But what about the middle market, where the majority of transactions take place? Many believed that, especially for private equity firms, that landscape would be shaken up a bit — but not by nearly as much as that for big deals. According to data from Robert W. Baird & Company, a middle-market investment bank, that’s only somewhat true.

In March, there were a total of 211 announced middle-market deals, defined by Baird as those valued under $1 billion. That’s a 36.1 percent drop from March 2007, and 35 percent below the average for each of the last 12 months. Read More.

Private-Equity Firms Active In Less-Splashy Deals

April 29 - CNN Money - Apollo Advisors has invested $4 billion of equity since last October but the leveraged buyout climate won't return to a semblance of normality until sellers of companies lower their prices to reflect economic reality, Apollo's founding partner said Tuesday.

"Credit has to work its way through the system and prices have to come down," said Leon Black at a panel on the state of the private-equity industry at a conference in Beverly Hills sponsored by the Milken conference.

Banks are beginning to clear up their backlog of past leveraged buyout loans and are slowly beginning to lend for middle-sized deals but asking prices have barely budged, he and others on the panel said. Read More.

Companies Are Proposing Mergers Again. Be Afraid

April 30 - Deal Journal Blog (WSJ) - The good news: companies are negotiating mergers again. The bad news: these so-called strategic buyers don’t always seem to be acting very strategically.

Consider the Deal Journal’s “Say What?” deal of the day: today’s $465 million tie-up between United Online and FTD Group. United Online provides Internet access through its NetZero and Juno services, and flowers are sometimes sold over the Internet. Voila, an Internet marriage. Is it 1999 again?

Actually, dot-com mash-up synergies are part of United Online’s stated reasoning, as seen in the conference call to discuss the deal with analysts. United touted its “proven marketing expertise to attract consumers to FTD’s websites and thousands of member florists while cross-selling FTD products to United Online’s existing member base of more than 50 million accounts that have similar demographic characteristics as FTD’s customer base.” Read More.