Newspaper article International Herald Tribune

Sluggish Economy Puts Brakes on Deals

Newspaper article International Herald Tribune

Sluggish Economy Puts Brakes on Deals

Article excerpt

Despite a flurry of last-minute deals, the market for mergers and acquisitions and initial public offerings stayed in the doldrums for the first half of the year.

Despite a flurry of last-minute deals, the market for mergers and acquisitions and initial public offerings stayed in the doldrums for the first half of the year, as the European fiscal crisis and a bumpy economy sapped corporate confidence.

The announcement of a few transactions Friday, notably Anheuser- Busch InBev's $20.1 billion takeover of Grupo Modelo, were rare stirrings.

Including that acquisition, the dollar volume of deals fell 21.9 percent from the first half of 2011, to $1.1 trillion, according to data from Thomson Reuters. The number of announced deals slipped 17 percent, to 17,826.

"It's been a stop-and-start sort of year," said James C. Woolery, a co-head of North American mergers at JPMorgan Chase. "There hasn't been consistent momentum, though there have been some good deals."

Bankers and lawyers attributed the continuing malaise to the same factors that have held deal-making of all stripes back for much of the past two years. The sharp swings in the markets have made it hard for many management teams to feel comfortable about committing to buying or selling.

With questions about how companies should be valued, deal makers said, it was difficult to conclude how transactions should be priced. That largely precludes the sort of risky, headline-grabbing deals that can promise to transform an industry.

In particular, many companies that would otherwise have considered selling chose not to or demanded higher prices than potential buyers were willing to pay. Avon Products, for instance, repeatedly rebuffed what became a $10.7 billion takeover bid from Coty, insisting that the offer was too low. Coty eventually walked away, and on Friday, it filed to go public.

"There's a valuation gap in many of these situations," said Stephen F. Arcano, a partner at the law firm Skadden, Arps, Slate, Meagher & Flom. "One of the reasons why deals can be so difficult is a disconnect between buyer and seller price expectations."

But there have been exceptions. In addition to Anheuser-Busch InBev's purchase of Modelo, for instance, there was the Walgreen Company's $6.7 billion acquisition of nearly half of Alliance Boots.

For the most part, however, corporations continued to seek acquisitions that augmented existing operations. Such transactions are safer and cheaper, and shares in acquiring companies rose after some of these mergers were announced.

The overriding goal is to make businesses more focused, priming them for what executives hope is more growth. Part of that effort may also involve divesting non-core operations through sales or spinoffs.

The most active industry for deal-making was the oil and natural gas sector, where 636 deals worth $123. …

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