Wall Street Sees Record M&A in 2006

Dollar value of deals may equal the total last seen at the end of the Internet boom, in 2000.
Stephen TaubDecember 5, 2005

Wall Street is expecting a possible record year for mergers and acquisitions in 2006, thanks to the huge amounts of cash on corporate balance sheets.

“2006 may well be the best year ever for mergers and acquisitions,” Paul Taubman, global head of M&A at Morgan Stanley, told Bloomberg. “We’re entering ’06 in a healthier environment than I think even in 2000.”

Richard Fuld, chairman and chief executive officer of Lehman Brothers Holdings Inc., told the wire service he anticipates a 20 percent increase in M&A volumes next year. This would translate into nearly $3 trillion worth of deals, which would equal the all-time high of 2000, according to Bloomberg. This year, to date, deals totaling about $2.3 trillion have been announced.

On Monday alone, Boston Scientific Corp. made an unsolicited offer of $25 billion in cash and stock for Guidant Corp., more than $3 billion higher than Johnson & Johnson’s bid for the maker of medical devices.

Indeed, Anthony Burgess, head of European mergers and acquisitions for Deutsche Bank, told Bloomberg he expects perhaps a half-dozen $25 billion-plus deals next year, driven in part by consolidation in the telecommunications and pharmaceutical industries.

The wire service pointed out that deal volume shrank by nearly two-thirds between 2000 and 2002 as the Internet bubble burst, terrorist attacks scared businesses from spending in general, and accounting scandals further eroded corporate and investor confidence.

Companies spent the past few years improving their balance sheets by refinancing old, expensive debt, the wire service noted, and improving corporate governance. The recent rebound in the economy has helped to boost overall confidence in spending as well.

“Cash flows for most U.S. companies are at historic levels right now,” Frank Aquila, a mergers lawyer at Sullivan & Cromwell, told Bloomberg. “There are a lot of buyers out there.”