23 Dec 2009 9:15pm
By Justin Baer and Lina Saigol
It did not take long for mergers and acquisitions
bankers to start talking up a recovery.
Following two years of depressed levels of worldwide deal activity,
bankers have turned bullish about a pick-up next year, encouraged by
rising equity markets and lower valuations.
Six deals in November worth a combined $135bn gave evidence of
improved boardroom confidence.
“M&A has really returned,” said Paul Parker, global head of M&A for
Barclays Capital. “In the second half of this year, and really, the
last quarter, we’ve moved from hearing the drum beats to actually
seeing the invasion.”
Unlike previous recoveries when deals tended to be constrained to a
specific sector, the fourth quarter saw companies across different
industries engage in M&A, from oil & gas with ExxonMobil’s $41bn
(€28.6bn) bid for XTO Energy, to consumer with Kraft’s $16.2bn hostile
takeover move on Cadbury.
“If activity continues like it was in the second half of 2009, we
expect to have a better year in 2010,” said Gordon Dyal, global head
of M&A at Goldman Sachs.
Finding the financing for acquisitions has certainly become easier of
late. While bank lending is still expensive, the bond markets are open
and companies with investment-grade ratings such as Pfizer, which this
year bought Wyeth for $68bn
, chose to tap investors directly.
Hopes are also resting on improved private equity action as buy-out
groups quit investments they have held for three to five years.
Greg Peterson, partner at PwC Transaction Services, said there was
still more than $1,000bn of capital committed to alternative
investment funds on the sidelines, waiting for appropriate
“The diversified private equity players have been bulking up their
debt, hedge and distressed funds to take advantage of opportunities in
distressed,” Mr Peters said.
Bankers say emerging market companies will help lead them out of the slump.
Henrik Aslaksen, global co-head of M&A at Deutsche Bank, said Asia,
and China in particular, were the areas to watch.
“Corporates looking to grow abroad will be looking east. Chinese firms
are increasingly sophisticated and ambitious, so the trend could work
both ways, as both east and west eye up each other’s potential.”
Mr Aslaksen also believes Australia and Canada – which are seen as
small but commodity-rich markets, have come out the crisis relatively
well. That would prompt more activity from foreign investors
interested in their natural resources.
Also, troubled companies are likely to turn to stonger ones to
survive, further boosting activity levels.
“There is some pressure … to make acquisitions to increase top-line
growth,” said Rob Kindler, global head of M&A at Morgan Stanley. But
in spite of the more bullish sentiment, almost all bankers concede
that a macroeconomic shock could set back the pace of recovery, given
the correlation between equity markets and M&A.
“Some think the equity market is ahead of itself given there’s not a
lot of growth in underlying earnings,” said Mr Kindler.
“If there’s a disruption in the markets early in the year, that would
have a very negative affect on M&A.” The first half of 2010 will set
the tone for the next M&A cycle, but as Jeff Kaplan, Bank of America
Merrill Lynch’s global head of M&A, said, a challenging year for
bankers is “ending on a good note”.
Kraft Foods Inc
Exxon Mobil Corp
XTO Energy Inc
Markets Data: © Thomson Reuters
Market data delayed by at least 20 minutes.
©The Financial Times Ltd 2009