Corporate takeovers in 2007 seen topping $4 trillion record
The number of deals is actually less, but total value is up 86%
NEW YORK » The rumors about a potential takeover of aluminum producer Alcoa Inc. this past week created an enthusiastic buzz on Wall Street that acquisitions this year will smash the $4 trillion record set in 2006.
Seven weeks into 2007, the amount of money for takeovers brokered by investment banks and private equity firms is trending above last year. In the U.S., market researcher Dealogic said volume has soared 86 percent to $228.6 billion from last year, while global volume rose 36 percent to $477.4 billion.
The statistics indicate that while the dollar amounts of these deals are growing, the number of them isn't. There have been 519 deals in the U.S. so far this year, down 38 percent from 2006, while global transactions declined 25 percent to 2,392.
Analysts believe this shows a shift in M&A trends. Wall Street might see the number of deals edge lower. But, those still in the mix will fetch increasingly higher takeover bids, such as a potential Alcoa deal that would easily top $30 billion.
"How big can it go? That's not the focus," said Gregg Slager, a senior partner with accounting firm Ernst & Young's private equity practice. "This is still all about value creation regardless of the size. The economy is strong, capital is readily available, and this creates opportunity."
While it might be about value creation, the competition among private equity firms and investment banks is increasing. Big deals such as the bidding war between Vornado Realty Trust and Blackstone Group over real estate investment trust Equity Office Properties are escalating deal volume.
In fact, it has become an intense Wall Street mating dance. In trying to gauge one of his suitor's interest, Equity Office Properties founder Samuel Zell sent an e-mail to Vornado Chairman Steven Roth that read "Roses are red, violets are blue; I hear a rumor, is it true?"
The e-mail, obtained by the New York Times, sought to determine if Roth might be interested in raising his bid to trump buyout giant Blackstone's offer of $48.50 per share. Roth responded: "Roses are red, violets are blue. I love you Sam, our bid is 52." And the deal was secured to buy the largest U.S. commercial real estate company.
If anything, the wooing that goes on in these big deals shows the willingness to raise the stakes. The exception so far this year has been Nasdaq Stock Market Inc.'s unwillingness to raise its offer price for the London Stock Market; the takeover attempt collapsed earlier this month.
One thing is for certain, that U.S. companies are sitting on record cash stockpiles -- at last count $605 billion racked up by members of the Standard & Poor's 500 index -- that can be used to expand through mergers and acquisitions.
"This amount of money is looking to be deployed, that has really made a difference in tactics and in attitude," said Bob Profusek, co-head of global M&A for law firm Jones Day. "There's this huge amount of money that needs to be invested."
That only means good things for investors, where the-sky's-the-limit offers can send share prices flying high. For example, rumors this week that Anheuser-Busch Cos. might be taken over caused its shares to hit a 52-week high. Speculation that Alcoa might be on the block helped send the entire Dow Jones industrial average higher on hope that acquisition activity will remain on a breakneck pace.
It also means Wall Street investment banks could be set up for another record-breaking year of profits. Investors have cheered results from the top five U.S. securities firms and sent their shares to new highs. Morgan Stanley, Merrill Lynch & Co., Lehman Brothers Holdings Inc., Bear Stearns Cos. and Goldman Sachs Group Inc. might all see appreciation in their shares as they garner more investment banking business.
This isn't lost on smaller firms. JMP Group, a boutique investment banking firm and asset manager based in San Francisco, has filed to raise some $100 million in an initial public offering on the New York Stock Exchange. The firm, founded in 1999 by executives from the old Montgomery Securities that was later bought by Bank of America Corp., last year posted a profit of almost $2.4 million on revenue of $63.6 million.
JMP joins others that have scrambled to go public in the past year to take advantage of robust M&A activity. Last year several boutique firms decided to go public to take advantage of the escalating capital markets environment. Shareholders that got in on their IPOs are now sitting on some pretty big returns.
Keefe, Bruyette & Woods Inc. has seen its shares advance 18 percent since it became a public company in November. Cowen Group Inc., founded in 1918 and most recently a division of French bank Societe Generale, has realized a 35 percent jump in its shares since going public in July.