FINspeak

Pitchbook had posted a statistic a few weeks back that according to their numbers there have been 111 add-on acquisitions so far in 2009. Considering that add-on acquisitions help to bolster core business or provide access to complimentary markets, it should stand to reason that add-on acquisitions should be at an all time high.

Interestingly enough, Pitchbook also provides figures for the historic percentage of add-on to total acquisitions, 32%, and the current pace is right in line with historic averages. Additionally, Q1 saw 71 add-on deals with Q2 only 40 which means there is a potential to dip below the historical average (June started quick so that remains to be seen). This is even more interesting considering recent comments on the type of innovation to pursue now made by Vijay Govindarajan, an expert on innovation and strategy from the Tuck School of Business at Dartmouth, on how corporate resources should be spent in a recessionary period. Mr. Govindarajan recommends that businesses in a recession should spend 70% of their time on the core business, 25% on adjacency innovation and 5% on break-out (high risk/high reward) innovation. Considering that an add-on acquisition is in effect adjacent to the core business, this makes the above trend even more counter intuitive. My guess would be that there is still a gap between buyer and seller expectation in addition to downward pressure on deals due to interest rates moving back up. Either way it is one more confusing indicator to compare against the other “green shoots” that are being touted by many as signs of economic recovery.

Posted by Jeremy Kloubec at 05:07 PM | Permalink | Comments (0) | TrackBacks (0)

J.P. Morgan and Thomson Reuters published a recent report on the Era of Globalized M&A which had a number of interesting items evident in their data (download or view here http://www.scribd.com/doc/16482515/The-Era-of-Globalized-MA). What I liked about the analysis was that the graphs in many cases went back 10 years to 1998 or all the way back to 1990 to see reactions to other market adjustments such as Tech melt down to draw comparisons for today’s market. While the report has a focus on global M&A trends, I found the sector data more interesting.

The most obvious findings were that M&A increases with the equity markets as companies have cash to spend on acquisitions (however prices are higher) and that peak M&A correlates to a bubble (not helped due to the last point). The data also suggests that Healthcare and TMT (Telecom, Media & Technology) will be the first sectors to pick back up with consolidation efforts coming out of the downturn. If you consider pharma part of Healthcare, this has held true in the case of the Pfizer-Wyeth megadeal earlier this year. Telecom activity has been flat with the T-Mobile UK to BT rumor not panning out, but Tech has been active albeit from Cisco and Oracle mainly driving the market. Financial M&A activity is shown to move counter cyclically which has played out in an enormous and hopefully once-in-a-lifetime way with Merrill, Lehman, WaMu and Wachovia vanishing and further Private Equity fueled activity for regional banks (BankUnited) or bank carve-outs (Fifth-Third payment processing). This historical data also shows a predicted eight quarter slowdown on M&A which would pull us out of the current stall later this year. However, in the past contractions, the financial system was not almost brought to its knees and I hope it will not be enough to derail these past tendencies to follow the script with a drift towards recovery. David Rubenstein of Carlyle Group recently made similar predictions for market recovery later this year so I hope he and the numbers from the Globalization report are right.

Posted by Jeremy Kloubec at 07:45 PM | Permalink | Comments (0) | TrackBacks (0)

Posted by Mritunjay Singh at 05:08 AM | Permalink | Comments (0) | TrackBacks (0)

About two weeks ago, the American auto industry, wading through the uncertainty of a pending bankruptcy and a proposed merger with an Italian auto giant, was informed of new fuel economy standards by the Obama Administration.  These standards increase the minimum fuel efficiency standard to 35.5 miles per gallon with a mandatory achievement date of 2016—a date pushed forward four years. 

While the American auto industry of ten years ago would have scoffed at such regulation, the new fuel standards will be embraced and provide further impetus to transform the industry with smaller, greener, and more fuel efficient vehicles complemented by leaner, more agile business operations.

Certainly, the auto industry isn’t the only entity taking notice and developing actionable plans in response to new fuel efficiency standards—many economies have recently responded with tougher fuel efficiency standards of their own.  Interestingly, China is developing legislation for fuel efficiency requirements more stringent than the United States.

With 168 million motor vehicles on the road in China and a dwindling supply of domestic oil, China’s planned modification to its fuel efficiency standard is driven by sustainability.  The rate in which Chinese vehicles consume gas, especially popular SUVs, was unsustainable and required policy change to limit excessive fuel consumption. 

Surely, China is still playing a game of catch up when it comes to emission standards but it’s positive to see the third largest economy in the world toughen their regulation on fuel efficiency.  I hope to see other countries follow the lead of China and enact tougher efficiency standards as the world shifts its dependence on oil.

Now, the real question is:  Can China build a fuel efficient Hummer?

To learn more, check out this article from the Business Insider.

Posted by Jitin Goyal at 06:18 PM | Permalink | Comments (0) | TrackBacks (0)

PitchBook in partnership with the AMAA (Alliance of Merger & Acquisition Advisors) recently published a report on the available capital or “dry powder” available for investment by Private Equity. What is surprising from this Overhang Report (delta between funds raised and put to use) is not hitting this record high number, but the 10 year run up to this point where every year with the exception of 2003 and 2007 saw significant year end overhangs which further added to the accumulating available capital (view the report www.pitchbook.com/library.html).

Larger fund sizes, easier credit terms and a rolling pot of available capital enabled PE to make larger buyouts and take bigger bets to chase returns. However, this massive accumulation cannot be attributed to the mega-funds themselves. The mid-market must have burgeoning coffers as well to put this money to use for larger acquisitions correct? Interestingly enough, the answer is surprising. The mega-funds will decrease their target acquisition size taking some opportunity away from the mid-market, a few funds at the higher end of the mid-market will beat the mega-funds at this game since they have always pursued a higher volume of transactions and could potentially make that leap as a larger “player”. What this leaves is a significant portion of the mid-market (and VC community) that has funds they cannot commit, may not have the ability to exist on their fee structure and are unable to raise enough capital to make acquisitions or placements in this more competitive market since new investors would not see a return with such a large amount of uncommitted capital is just waiting to be deployed. You end with up with stranded available investment that will need to be cleared with some mechanism and put to use. I don’t have the most optimal answer to accomplish this task, but it would go a long way towards jumpstarting the current economy.

Posted by Jeremy Kloubec at 03:51 PM | Permalink | Comments (0) | TrackBacks (0)