Bailouts Cushion Decline In 2008 Global Mergers

Global Finance, Feb 2009 by Platt, Gordon

The volume of worldwide mergers and acquisitions fell 30% last year compared with 2007, but the decline in announced deals would have been even larger without the government bailouts of financial institutions, which represented a significant share of M&A activity.

The financials sector accounted for 22.4% of all European deals in 2008, according to Thomson Reuters. This reflected the United Kingdom's $26.1 billion equity investment in the Royal Bank of Scotland, the Dutch government's $23.1 billion acquisition of Fortis Bank Netherlands and the UK government's $14.8 billion acquisition of a majority interest in HBOS, the holding company that owns Halifax and Bank of Scotland.

Worldwide M&A transactions announced in 2008 totaled $2.9 trillion, a decrease of 29.6% from 2007, ending five consecutive years of M&A growth, according to Thomson Reuten. Goldman Sachs was the leading financial adviser for M&A deals announced globally in 2008, followed by J.P. Morgan, Citi, UBS and Morgan Stanley.

"Highlighting the difficult dealmaking environment was a spike in the number of withdrawn M&A transactions, which hit an all-time record in 2008," Thomson Reuters said in its report on last year's merger activity. A total of $324 billion of deals involving targets located in the Americas were withdrawn in 2008, including the $46.8 billion leveraged buyout of BCE, Canada's largest telecom group, which would have been the largest LBO ever if it had been completed. Microsoft's $41.9 billion bid to acquire Yahoo was another major announced deal that was withdrawn last year.

Mergers and acquisitions in the United States totaled $986.3 billion in 2008, a 37.2% decline from 2007, according to Thomson Reuters. Government investment activity, including sovereign wealth fund investments, comprised a record 5.5% of the total. The Singapore Investment Authority invested $6.9 billion in Citi. The Kuwait Investment Authority and Korea Investment Corporation invested $2 billion in Merrill Lynch.

The US Treasury Department committed to purchase up to $250 billion in non-convertible senior preferred stock under its Troubled Asset Relief Program (TARP), but Thomson Reuters classified these securities as debt instruments. The treasury also received warrants to purchase common stock with a total market value equal to 1 5% of each senior preferred investment for publicly traded securities and 5% for privately held securities.

Bolstered by strong deal activity in China and Southeast Asia, the M&A total in the Asia-Pacific region fell by a relatively small 8.7% in 2008, compared with 2007. China had a record of nearly $160 billion in deal activity last year, a 44% increase from 2007. China's cross-border M&A activity rose by 51% to a record $78.4 billion.

US M&A activity ground to a near standstill in December 2008. MatlinPatterson Global Advisers' agreement to invest $250 million in Troy, Michiganbased Flagstar Bancorp was the only major transaction outside of the treasury's TARP program. MatlinPatterson, a private equity franchise, agreed to acquire voting preferred stock convertible into a 70% interest in Flagstar Bancorp, the largest publicly held savings bank based in the Midwest.

Citi Infrastructure Investors' (CII) agreement to acquire a majority stake in Spain-based Itinere Infraestructuras from heavily indebted construction group SacyrVallehermoso was the biggest transaction in Europe in December. "Itinere will be CII's platform to invest in mature toll roads in OECD [Organization for Economic Cooperation and Development] countries," says Fidel Andueza, a partner at CII.

The biggest transaction announced in December was in Japan, where Panasonic agreed to launch a tender offer to acquire Sanyo Electric. The deal, valued at more than $11 billion, would give Panasonic the lead in the global rechargeable battery market. - Gordon Platt