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Working for an M&A research publisher with clients across three continents has certainly presented its challenges over the past 12 months, writes Ed Lucas, Editor with Remark, the research and events division of The Mergermarket Group.
It has also provided a vantage point on the unfolding world of M&A in what has been something of a watershed year. What follows is a selection of some of those landmarks that have stood out among the sea of headlines, email alerts and wider market sentiment.
Buyout boom
New York City, December 06: Downtown, almost the very tip of the island. It’s a freezing grey day outside. Sat in the twentieth floor of a deep-carpeted office of a leading M&A lawyer. For all the talk of the shift in power to London, this is it. This spiky concrete jungle is still the hard-wired centre of global money-flow and still knows it. Like the steaks – they still do it bigger and better here.
Talk in the meetings is of covenant-lite deals, EBITDA holidays, and private equity and bulge bracket clients tearing up the rulebooks. Barbarians at the gate? More like the barbarians guarding the gates. ‘But how long can the rule-bending last?’ says my interviewee, his caution rings in my ears as I rush to my gate at JFK and the Christmas break. The New Year, however, will bring yet more record-breaking buyouts: TXU ($44bn), First Data ($27bn), and Alltel ($27bn).
Toast of the Eurozone
Dublin, March 07: An M&A conference in Ireland. The mood around M&A is upbeat – acquisitive corporates mingle with rich individuals, some of them builders made property millionaires over the past decade. A dawn radio interview to talk up Ireland’s M&A market is followed by a presentation to an audience of local advisers and acquisitive corporates. Even the venue – the Berkeley Court Hotel – is itself part of the €1bn Jurys Doyle Hotel deal.
The camel’s back…
London, July 07: It has started. A domino effect. The US sub-prime crisis and the start of what rapidly becomes known as the credit crunch. Both phrases that will enter the year’s most used monikers alongside collateralized debt obligation, cov-lite and sovereign wealth funds (the last term a rebranding of 2006’s ‘petro-dollars’). What will be 2008’s M&A buzz-words be I wonder?
August brings an event in Sydney as well as another research project for an advisory client in Asia, stretching our horizons and jet-lag tolerance. We’re tasked with looking into cross-border M&A prospects in Asia Pacific countries for a faceless advisory client in Singapore whose Blackberry is never switched off. The US might be slowing, but experts feel the depreciating dollar is driving a ’decoupling’ of Asian economies from reliance on the world’s economic superpower. Certainly the Chinese have been buying. A holding in Blackstone’s blockbuster IPO and a strategic stake in Barclays are the two most high profile examples. Both deals prove to be disappointing punts in the short run, but there is plenty left in Chinese pockets for further bets.
M&A from 66 degrees north
Reyjkavik, September 07: Back to Iceland following a report last year. A volcanic land with a fiery and volatile economy to match, and ambitious track record in conducting cross-border deals. Despite a population of only 300,000 its low storey corporate and finance houses have lofty targets. An M&A nation punching far above its weight, supported by deep financial reserves and willingness to do deals to diversify from domestic reliance.
Retail blues
London, October 07: Forget the credit crunch, what about ‘le crunch’? Bankers return delirious from watching England’s unfancied rugby team boot France out of their World Cup a week after turning the tables on Australia. Meanwhile, back on the UK high street previously unbeatable KKR struggles to keep hold of their Boots in an LBO approach for the UK retailer (a precursor one thinks to the aborted £10.6bn bid by the Qatari Investment Authority’s backed Delta II for UK retailer Sainsbury’s).
Financial Services in Russia
Moscow, October 07: Snow flurries, borsch and log-jammed streets. The traffic really is something. If road congestion was an index of M&A potential Moscow would certainly take top spot over London, and I can’t see the congestion charge working here. Not yet. Our driver going with the flow does an unsanctioned u-turn, and a corrupt traffic cop swoops on our lowly Chrysler to extort a bribe. Mercedes saloons with tinted windows pass by untouched. M&A is similarly murky one feels. Media interest in our banking sector report is high. The local advisory firms we visit are a curious mix of Fendi leather sofas, metal detectors, machine gun toting guards, and bristling energy for deal opportunities.
From a 16th floor office the sun is blinding on the white roofs of Moscow. A landscape of high cranes implementing State plans for a second Manhattan. On the street below I eat hot dogs with our beleaguered driver, and watch a soldier smoke before descending into the metro, he ingests his cigarette in three hungry drags.
Central & Eastern Europe
Prague, November 07: Along with the CIS region and pockets of Asia, Central & Eastern Europe continues to be a strong emerging area for M&A dealmakers we work with. St Wenceslas Square is picture book beautiful but a definite downshift from Moscow. CEE M&A is still a hot topic, but one can’t help but feel the real money is being made further east.
Buyout bust
London, November 07: A private equity event, co-branded with our new owners, the Financial Times Group. A lush affair at the Sofitel St James. Headliners are Bastian Leuken and David Blitzer of Texas Pacific Group and Blackstone respectively. Private equity has had a horrible six months. Stripped of their syndicated finance, and hounded by unions, government and media, they are no longer masters of the M&A universe, but they still talk a good fight. Blitzer admits that mega deals are impossible in today’s market. However, the overall message is that private equity has plenty of other tricks up its sleeve and is adapting to changed circumstances very nicely thank you.
Year-end audit
Amsterdam, November 07: Rolling into Christmas. An interviewee talks of resetting the clocks. He is talking about lower debt EBITDA multiples since the summer, but I’m thinking of the Christmas break already, even though there is a full roster of projects to complete before year-end and new studies lined up in 2008.
2008?
London, December 07: Final date in the calendar is an M&A awards dinner to celebrate the leading European deal makers in this topsy turvy year. All of last year it seemed market watchers were talking about when the M&A cycle would fall and looking for ways to spot it. Globally, 2007 to date has seen over 12,000 announced deals worth almost $3.3 trillion. With three weeks left, this looks set to eclipse last year’s total value by a whisker (the deficit is currently only nine billion dollars). Last year saw more deals – close to 14,000.
The big question now is will 2006 & 2007 prove a combined peak or a plateau? Heading into 2008, M&A does not appear be guaranteed to decline. After all, the liquidity crisis has rather distracted from what has been a very strong second half for strategic buyers, with transformational deals brokered by the likes of RBS and BHP Billiton in their respective sectors.
Certainly M&A is no longer as binary as in previous cycles, with globalising corporates and financial buyers looking at an ever wider host of markets and industry verticals. Additionally, they are joined by an ever more varied mix of buyers, from sovereign wealth and infrastructure funds to activist shareholders and distressed investors.
At present, it seems safest to cling to a cliché: 2008 does not look like the beginning of the end for M&A but rather the end of the beginning.
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