Strategy

M&A’s Preholiday Upswing

A couple of large deals bring some optimism, but 2012 projections are bearish.
Vincent RyanNovember 22, 2011

A spurt of merger and acquisition deals last week and a couple of large transactions earlier this week could portend a bright opening to 2012, but don’t count on it. M&A bankers are reporting that their conversations with corporate clients are “aspirational” rather than transaction-specific. Recent economic indicators have again sparked discussion of a second recession, throwing a wrench into forecasts. And equity markets are as volatile as ever, making it more difficult for buyers and sellers to set terms.

With renewed worries about U.S. economic prospects in 2012 and the ongoing European debt crisis, Standard & Poor’s said this week that it expects the slowdown in M&A volumes among nonfinancial companies to continue into next year.

Still, in the week ending November 18, 53 deals worth $18.3 billion were announced, according to data provided to CFO by mergermarket. That’s up from 44 deals worth $6.0 billion the prior week. So far in 2011, there have been 4,553 announced transactions in North America, with a total disclosed value of $1.2 trillion. By number of deals that’s a 5% decrease year to date, but total dollars spent is up 13% over 2010.

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Those figures do not include two large deals announced Monday: Gilead Sciences’s agreement to buy Pharmasset, a developer of hepatitis C drugs, for $11 billion, and Allegheny’s offer to buy Transatlantic Holdings for $3.4 billion, an offer that could end a drawn-out takeover saga.

Most of this week’s deals were about building out or extending market presence, by adding products or geographic territories. But the largest transaction was a divestiture, Bank of America’s sale of a 4.14% stake in China Construction Bank. The total consideration was $6.6 billion, and the buyers were an investment group led by Temasek Holdings, Singapore’s sovereign wealth fund.

Elsewhere in financial services, U.K.-based Virgin Money Holdings picked up Northern Rock, which suffered a bank run during the financial crisis. WL Ross & Co., a turnaround investor, kicked in 100 million British pounds ($156 million at current exchange rates) for a 21% stake in the retail bank. U.S. investment bank Evercore Partners acquired a 45% piece of ABS Investment Management, a hedge fund manager, for $45 million in cash; and Nuveen Investments bought a 60% stake in Gresham Investment Management, a commodities portfolio manager. In addition, TradeStation, a Plantation, Fla.-based online broker, acquired IBFX Holdings, a provider of online forex trading services.

Energy also saw sizable divestitures, with ConocoPhillips selling a 16.7% stake in Colonial Pipeline Company for $850 million. The buyer was a subsidiary of Caisse de Depot et Placement du Quebec, a manager of private and public pension funds. ConocoPhillips also jettisoned a 50% piece of Seaway Crude Pipeline, a pipeline operator and distributor, for $1.2 billion. The buyer was Canada-based Enbridge Holdings.

High-tech deal making also displayed some resilience. Electronic payments provider Verifone Systems acquired Sweden’s Point International AB, a provider of payment gateway services to retailers, for $825 million. The seller was private-equity firm Nordic Capital.

Also in high tech, China’s Huawei Technologies bought out Symantec’s remaining piece of the two companies’ joint venture, Huawei Symantec Technologies, for $530 million; Kenexa, a provider of software for talent acquisition and performance management, bought Batrus Hollweg International, a talent management consulting firm; and San Diego-based Kratos Defense & Security Solutions, a provider of engineering and IT services for things like command control, combat systems, and intelligence surveillance for the U.S. military, purchased SecureInfo, a services and software company with expertise in cyber security.