A Tale of Two Industries: Energy, Finance Deals Proliferate for Very Different Reasons

By Platt, Gordon | Global Finance, June 2008 | Go to article overview

A Tale of Two Industries: Energy, Finance Deals Proliferate for Very Different Reasons


Platt, Gordon, Global Finance


CORPORATE FINANCING FOCUS

The volume of worldwide mergers and acquisitions totaled $730 billion in announced deals in the first quarter of 2008, a decline of 24.2% from the first quarter of 2007 and the lowest level for deal activity since the third quarter of 2006, according to Thomson Financial. The outlook is not entirely bleak, however, with a significant number of takeovers likely this year in the troubled financial services industry as well as in the booming energy sector.

The slowdown in M&A activity in the first quarter of this year was clearly related to the effects of the credit crunch on the availability of financing and the effects of volatile stock and bond markets, analysts say. Deal volume in the United States fell 51.1%, accounting for 26.8% of worldwide M&A volume, down from 41.6% of global transactions in the same period a year earlier.

Private equity firms were left largely on the sidelines during the first three months of this year due to the uncertain environment in the global credit markets, Thomson Financial said. The $81.3 billion in announced deals involving financial sponsors was the lowest since the third quarter of 2005.

"While objectively there has truly been a slowdown in M&A activity, particularly in the private equity world, this should be put in perspective," says William Kucera, partner at Chicago-based Mayer Brown, who represents buyers and sellers in acquisitions and divestitures. "The recent past was a statistical outlier, with the highest volume of deals on record," he says.

Opportunities for Buyers

A significant number of deals are still getting done, particularly those involving strategic buyers with good balance sheets and cash reserves, according to Kucera. Private equity firms are still doing deals as well, but the transactions are not as big as they were a year ago, he says. "The middle market is still relatively strong," he points out. "If you are a well-positioned buyer, there are opportunities."

Two industries that will continue to have a large volume of M&A transactions this year are finance and energy, but for completely different reasons, Kucera says. In financial services, deals are being done out of necessity, whereas in the oil and gas industry, where companies are making a lot of money, they are buying assets at inflated prices, he says.

Meanwhile, sovereign wealth funds, such as the Government of Singapore Investment Corporation and the Kuwait Investment Authority, took significant stakes in US banks, including Citi and Merrill Lynch, in the first quarter of 2008 and are likely to make additional investments.

The number of sovereign wealth funds has surged, as Asian nations and oil exporters in the Middle East seek higher returns on their massive currency reserves by taking stakes in companies. The funds have assets of about $3 trillion, and Morgan Stanley forecasts that their holdings may quadruple by 2015.They more than doubled their global M&A spending last year with acquisitions of companies and minority stakes of more than $60 billion.

Sovereign wealth funds could take up some of the slack in the market caused by the slowdown in the private equity industry. They take a longer-term view of investing and are not affected by changes in the credit cycle. These funds accounted for more than one-third of global M&A in 2007.

Hedge Funds Are Targets

Hedge funds have increasingly become takeover targets. Sales of alternative investment firms, the majority of which were hedge funds, accounted for a record 40% of deals in the global investment management business in the first four months of this year, according to Jefferies Putnam Lovell, a division of New York-based investment bank Jefferies.

"We expect record demand for alternative asset managers to continue throughout 2008, motivated by buyers' search for absolute returns and innovative products in challenging capital markets," says Aaron Dorr, managing director at Jefferies Putnam Lovell. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

A Tale of Two Industries: Energy, Finance Deals Proliferate for Very Different Reasons
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.