Analysts predict number of cross-border M&A deals to sky-rocket

Weekly Corporate Growth Report, Jul 10, 2000 by Nasri, Jennifer

You can attribute it to worries about inflation and a volatile stock market, but the U.S. mergers and acquisitions market has seen a significant slowing down during the second quarter 2000. It is clear to see that the record-setting numbers that occurred in the first quarter 2000 have been replaced with some rather average numbers this quarter.

Research shows that total deal value has declined from $470.9 billion in the first quarter of 2000, to $248.1 billion this quarter. The deal volume total has fallen to 2,261, a 12 percent decrease. The number of deals worth $1 billion or more also tumbled, from 63 in first quarter of 2000, to 44 in the second quarter. Additionally, the mega-deal transactions in the first quarter were worth $372.8 million, significantly more than those that occurred in the second quarter, which were worth only $164.3 billion.

Despite the decrease in overall domestic deal activity and deal volume, a number of industries continue to set records. These industries include Computer Software, Supplies & Services (613 deals), Miscellaneous Services (227 deals), Communications (118 deals), Brokerage, Investment & Management Consulting (112 deals), and the Retail industry (96 deals).

What is interesting to note is that the largest deals in the second quarter were not combinations between American companies, but instead cross-border transactions. According to an M&A forecast published by PricewaterhouseCoopers, although the numher of mergers and acquisitions will rise throughout the year, these deals will have a much more "distinct European flavor."

In fact, the biggest deal in second quarter 2000 was the combination of the DutchBritish consumer products giant, Unilever, and Bestfoods, in a deal worth $20.2 billion. Once combined, the new company will become the largest food maker in the world, with an annual revenue of more than $52 billion.

The value of deals between foreign and American companies rose from $91.2 billion in first quarter of 2000, to $107.4 billion in the second quarter. However, this figure is still lower than the $114.9 billion generated in the second quarter of 1999.

Robert Filek, a partner at PricewaterhouseCoopers, believes that during the next quarter there will be a wave of "M&A interest on the part of `Euro-buyers', particularly in telecom and financial services." In his opinion, there are many strong European firms which produce quality products and services, but lack market share in the U.S. According to Filek, we will see an increasing number of these companies "paying for growth" by buying market share in industries which "translate well into their domestic markets." Thus, according to PricewaterhouseCoopers's forecast, we can expect to see European companies becoming increasingly aggressive acquirers in the U.S. over the next two quarters. Sources: PricewaterhouseCoopers, The New York Times and Mergerstat