Tuesday, July 03, 2007

Global M&A volume a record $2.88 trillion in first half

Global mergers and acquisitions volume surged to $2.88 trillion in the first half of 2007 up 55% from the same period a year ago, according to Dealogic. A 133% increase in financial sponsor-led buyouts fueled the increase and M&A in the U.S. surged past $1 trillion, a 75% increase above the same period last year. The average deal size rose 58% to $298 million


The main force that is keeping stocks alive and driving equities to lofty levels. How important the debt market this time with ultra low borrowing cost is shows the following graph. Back during the tech bubble the majority of big mergers were stock deals with no money flowing from the debt to the stock market. At the margin these stock deals were a zero sum game and didn´t pump new money to equities. Today this changed significantly. I´ll expect that with more risk aversion coming back to the market and spreads widening we will see a swing back to a much higher equity component. That doesn´t mean that the $ amount will be lower. I think the opposite is true. When you can pay with inflated stocks the original announced price will increase. But for how long......See AOL/Time Warner.....

M&A sind die wirklich treibende Kraft die Aktien zu immer neuen Höhen pushen. Wie wichtig hierbei inzwischen die ultrabilligen Kreditmärkte geworden sind zeigt sich an der nachfolgenden Grafik. In den wilden Zeiten der Nasdagblase wurden die meisten Übernahmen anhand von reinen Aktientransaktionen abgewickelt. Diese Deals haben den Aktienmärkten unterm Strich keine neue Liquidität seitens der Kreditmärkte übermittelt. Es ist also kein neues Geld in den Markt geflossen. Heute passiert das genaue Gegenteil. Ich bin mir aber sicher das sich das mit der steigende Risikoaversion die mit höheren Finanzierungskosten einhergeht ziemlich bald ändern wird und wir wieder eine deutlich höhere Aktienkomponente sehen werden. Das muß nicht zwangsweise zu niedrigen M&A Zahlen führen. Vermutlich wird die angekündigte Summe sogar ansteigen. Es ist halt viel einfacher mit hoch und überbewerteten Aktien zu zahlen. Es bleibt nur abzuwarten wie lange sich der ursprünglich angekündigte Preis halten kann......Bestes Beispiel hier sicher AOL/Time Warner.....

Some people try to spin the recent M&A number and point out that the average premium paid is stilll far below the peak in 1999 and implying that there is still more to come. Sounds desperate to me. As i´ve written above AOL and others have paid with almost worthless paper/stocks. I can remember a deal from JSDU that bought SDLI with a huge premium for over $35 billion. No wonder that premiums were high......

Einige Marktbeobachter un Kommentatoren verweisen bdei den M&A Zahlen immer auf den Punkt das die momentan gezahlten Prämien noch nicht annähernd die Höhen von 1999 erreicht haben und somit immer noch Luft nach oben ist. Klingt mir eher wie das Argument eines Verzweifelten. Wie bereits oben beschrieben wurden damals Deals mit nahezu wertlosen Aktien bezahlt. Ich persönlich kann mich sehr gut an die Übernahme von SDLI von JDSU über satte 35 mrd$ inklsuive einer satten Prämie erinnern. Alles Aktien.....

Here comes the real story! This graph show the purchase price (including debt) on a cash flow basis (ebitda). This parameter is hitting new historic highs! The fact that at the same time margins are also at all time highs makes this number even more worrysome.....We will see down the road how many of the recent deals were/are "smart" deals. But one thing is for sure....the deals are not cheap!

Diese Grafik umschreibt die eigentliche Geschichte. Nach dieser Kennziffer sind Deals noch nie so teuer eingekauft worden wie z.Zt. Hinzu kommt das die Margen der Firmen momentan überall ebenfall neue Allzeithochs erreichen....Wir werden es in naher Zukunft erleben ob die ganzen Übernahmen wirklich "clever" waren. Eines ist in jedem Fall sicher...billig sind sie nicht.

UPDATE:
Hilton Hotels Sells Itself to Blackstone Group for $20 Billion in Cash
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4 Comments:

Anonymous Anonymous said...

IMO these so-called "private equity" deals are not a big threat to the market at this point, given the general view that the world's economies are in pretty good shape, and the cost of debt is still relatively low (although more expensive than potentially worthless stock) -- there just isn't enough reason to suspect the debt won't be serviced and repaid. Unlike the (largely unreported) shenanigans now going on to try to keep CDOs based on bad mortgages and other risky debt from hitting the market -- e.g. the Bear Stearns bailout. You really have to ask: Why would Bear do that? Didn't the fund's creditors know the risk when they loaned Bear money? Wasn't the prospectus, or presentation on the fund, completely honest? If all that was totally aboveboard, why would Bear want to take such a loss instead of letting the creditors take it? After all, presumably they traded risk for return; this time they happened to get burned. So IMO there is something really very fishy there. When the inevitable across the board mark-to-market begins in earnest, the financial markets should take notice. At that time the economic effects of the housing slump, e.g. on the consumer and retail sales, will also be hard to ignore anymore. If that bomb is big enough (no one really knows right now), there will definitely be an explosion of lawsuits, as some of the institutions taking big losses -- e.g. insurance companies and pension funds -- will try redress in the courts. And by then it will no longer be possible to keep the early stage 'plunge protection' shenanigans quiet -- many will see this as in indication of fraud, as if they had something to hide. The rating agencies will be a target as well (i.e. not just the Wall St companies that pushed the CDOs).

It will be interesting.

Although like everything related to the markets, there are no guarantees. But I have owned SKF and SRS for some time, and have tended to buy a bit more on dips. Although the volatility, particularly in SRS, is sometimes hard to take.

2:46 AM  
Blogger jmf said...

Moin Anon,

indeed, very fishy.....

I think that PE won´t be such a big support as they have been in the past 12 month.

It will be fun to watch when they all want to unload it via ipo´s or others exits (flipping to other pe :-).

Could be a little crowded down the road....

4:24 AM  
Anonymous Anonymous said...

I wonder about the tax revenue implications. On one perspective the govt. is "preferred equity" holder in public companies, senior to equity but junior to debt. When taken private the leverage applied reduces the future cash flow available to govt. and equity holders (all else equal).

At the same time it increases present govt. revenue if capital gains taxes are realised on the higher firm valuation (attached because of the lower future cash going to govt. flows)

From equity perspective some shareholders are "forced" to pay a higher capital gains tax today permitting the private buyers to pay less tax in the future.

1:36 PM  
Anonymous ilanit said...

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1:32 AM  

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