Record year in mergers, acquisitions forecast

< Prev | 1 | 2

There are about 8,000 hedge funds worldwide controlling about $1 trillion in assets and their annual returns dropped from double digit levels just a few years ago to between 6 percent and 8 percent last year, according to Jim Stynes, head of mergers and acquisitions at Deutsche Bank.

“They (hedge funds) have found that being activist will help them get more returns,” Stynes said.

This year is likely to see a continuation of the trend toward private equity funds and other investors banding together to bid on a company. In February, The Blackstone Group International, a global investment and advisory firm, and Lion Capital LLP, a London based private equity firm, joined up to buy the European beverages division of Cadbury Schweppes.

Story continues below ↓

Teaming up allows investors to buy larger corporations, and also reduces the number of rivals angling for a company. So there’s less likelihood of a bidding war that drives prices higher than a solo buyer is willing to pay.

“We’ll see more club deals this year with a number of private equity firms getting together as a consortium,” said Iain McMurdo partner at Walkers Global, an international law firm specializing in investment funds.

The pairing of private equity funds has some Wall Streeters returning to a favorite parlor game: Who can assemble a leveraged buyout — a deal financed with borrowed money — that surpasses Kohlberg Kravis Roberts & Co.’s purchase of RJR Nabisco Inc. in 1989? That deal, worth $25 billion, has become the stuff of legend, spawning a best seller and movie chronicling the deal, “Barbarians at the Gate.”

“It is certainly possible” that the RJR deal could be eclipsed in 2006, said Morton Pierce, head of mergers at Dewey Ballantine LLP, a law firm active in mergers advisory work.

Bankers have put together some high-profile leveraged buyouts since the late 1980s, but none has surpassed the RJR deal. Last year, the top LBO was Ford Motor Co.’s sale of its car rental business, Hertz Corp., to an investor group for $15 billion.

Investment bankers believe mergers and acquisitions will be seen in a wide range of industries this year. Energy companies may buy competitors for their natural gas fields, while rural telephone exchange operators may band together to be more competitive. Within health care, professional staffing companies and medical device makers could be targets, while the auto industry is expected to see activity among auto parts manufacturers.

Gregg Smith, head of mergers and acquisitions at CIT, said so much of the nation’s gross domestic product is spent on health care that bankers are sure to keep an eye on that industry. “Deals follow the money,” he said.

< Prev | 1 | 2