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Corporate acquisitions for 2006 set record
By Vinnee Tong
Monday, November 20, 2006
Buyouts are having a banner year. The volume of acquisitions announced this year breaks the record set in 2000, as the dollar total reached an all-time high last week, even before a slew of takeover announcements were made Monday that pushed it even higher.
As of Monday, the total value of announced acquisitions worldwide reached $3.46 trillion for the year, exceeding the $3.33 trillion level of announced deals reached in 2000, according to Dealogic.
"This is merger mania," Standard & Poor's senior index analyst Howard Silverblatt said.
In comparison, the gross domestic product of Europe's largest economy, Germany, came in at $2.48 trillion in 2005, according to the latest figures in the CIA Factbook.
Data from Dealogic shows the number of deals announced this year to be 28,312, lower than the 31,019 in 2000. The United States remains the center of deal activity, accounting for 36 percent, or $1.22 trillion, this year, down from 46 percent, or $1.53 trillion, in 2000, according to Dealogic data from last week.
The intense acquisition activity is driven by the surplus of cash held by private equity firms and public companies alike as well as interest rates that are at historic lows and the willingness of banks to provide financing. If current economic conditions persist, the whiplash pace of acquisition activity may go on.
An interesting aspect of this wave of acquisitions is the growing number of public companies that are being taken private, said Bob Filek, a Transaction Services partner at PriceWaterhouseCoopers who specializes in global M&A. Filek said it would take a decline in overall credit quality and greater concern over debt to put a damper on M&A deals.
On Sunday, the Blackstone private equity group agreed to buy Equity Office Properties Trust, the nation's largest publicly traded office-building owner and manager, for $19 billion. Minus debt, the deal would be the third-largest leveraged buyout on record -- if it goes through -- behind the $25.1 billion paid for RJR Nabisco in 1988 and the recent $21.2 billion deal to take HCA Inc. private.
Other deals announced on Sunday and Monday include: Freeport-McMoRan will acquire Phelps Dodge for $25.9 billion in cash and stock; brokerage and financial services firm Charles Schwab Corp. said it will sell its wealth-management subsidiary U.S. Trust to Bank of America Corp. for $3.3 billion in cash, and Canadian banking company TD Bank Financial Group said it would acquire the portion of TD Banknorth Inc. it does not already own for about $3.2 billion.
Anthony Sabino, an associate professor of business at St. John's University in New York, said acquisitions were likely to continue at a rapid pace well into next year, but have likely reached a crescendo this year.
"It's common sense, economic history, and the basic rules of life that grandma taught you when you were a kid, that there are not enough good deals left," Sabino said. "There are too many big deals going on, the question has to be asked what good deals are left. And if there are not that many good deals left, then what is left? What's left is bad deals."
Of the top 10 biggest deals ever, eight have been announced since the beginning of this year.
After the HCA and Equity Office deals, the next largest acquisitions announced this year, minus debt, were: Clear Channel Communications Inc. ($18.8 billion), Freescale Semiconductor Inc. ($17.7 billion), Harrah's Entertainment Inc. ($15.4 billion), Kinder Morgan Inc. ($14.6 billion), Univision Communications Inc. ($12.1 billion) and Albertson's Inc. ($11 billion), according to Thomson Financial.
Meanwhile, in a speech Monday, Treasury Secretary Henry Paulson said heightened regulation was a factor driving many public companies to revert to private status, facilitated by growing pools of private capital.
"This is occurring in record numbers, at record volumes, and, as a percentage of overall public company M&A activity, is approaching levels we have not seen in almost 20 years," he said.
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