Global Mergers & Acquisitions Explode

Article excerpt

On a fairly typical day in April, Mergerstat, a Los Angeles-based company that tracks mergers and acquisitions (M&As), updated its daily postings to reflect 42 new M&A deals with values of more than $100 million per deal. All were announced in one 24-hour period, pushing the second quarter of 2000 closer to the $1.166 trillion in mergers and acquisitions announced worldwide during the first quarter. Among the day's announcements: Chase Manhattan Corp. agreed to pay $7.7 billion for Robert Fleming Goldings, Ltd., a UK merchant bank; Microsoft acquired a 60 percent interest in Titus Communications, the second largest broadband provider in Japan; and Cisco Systems Inc. acquired Pentacom Ltd., an Israeli high-tech firm.

Although most of the global action on that particular day involved U.S. companies acquiring new foreign holdings, foreign firms also increased their holdings in the United States. Via Technologies Inc., a Taiwan-based chipset and microprocessor designer, purchased the graphic-chip unit of S3 Inc., a California company in one of several transactions involving U.S. companies as targets. Global M&A announcements in the first five months of this year indicate that 2000 will surpass the new record set in 1999, which topped the record set in 1998. Among the blockbuster megadeals involving U.S. firms, a growing number are cross-border transactions. Of the five largest mergers involving U.S. firms in 1999, two involved global mergers of British and American companies. Roughly half of all mergers and acquisitions are now cross-border deals.

All of these mergers and acquisitions trigger competitive realignments and force corporate executives to move up their timetables for global growth. The continuing wave of cross-border mergers and acquisitions also underscores the importance of moving credit managers to higher levels of expertise in global credit and risk management. In addition, more credit professionals will be drawn into the early stages of M&A transactions for assistance with financial analyses of potential targets and credit-related factors in valuations. Credit managers should prepare now to take on a broader advisory role in senior management as global M&As heat up.

Record-Smashing Growth

Although M&A experts believed that nothing could top 1998's record of $2.52 trillion in global M&A activity, 1999 topped it by 36 percent, with total worldwide transactions announced in 1999 hitting $3.43 trillion, a new all-time record. According to Thomson Financial Securities Data's analysis of merger and acquisition activity in the first quarter of 2000, the global M&A market is still hot and may top the 1999 record despite a slight cooling of M&A activity in Europe. Global M&A activity in the first quarter of this year, valued at $1.166 trillion, easily surpassed the $1.086 trillion reported for the fourth quarter of 1999 and was substantially higher than the first quarter a year ago. For the first quarter of 2000, the United States accounted for $600 billion or about half of all mergers and acquisitions, followed by Europe, the second largest market, with $351 billion in mergers and acquisitions, about 30 percent of the total.

Mergers and acquisitions in the telecommunications sector almost doubled in volume to become the hottest industry sector for M&As in 1999 and the first quarter of 2000, followed by commercial banking. The forecast for the rest of this year calls for continued record-breaking M&A activity in telecom, particularly in the wireless communications field. Experts also anticipate strong M&A activity in the banking sector stemming from financial deregulation in the United States that will spur consolidations among banks, brokerage firms and insurance companies.

European Consolidation

While M&A activity in the United States hit $1.75 trillion in 1999, up slightly from $1.63 trillion in 1998, M&A activity in Europe more than doubled last year. …