Analysis of M&A Deals in 2007

Article in McKinsey Quarterly Winter 2008 Issue

Global deal making n 2007: is the boom in M&As over?
Antonio Capaldo, Richard Dobbs, and Hannu Suonio

Announced mergers reached $4.4 trillion globally in the first 11 months of 2007.

Merger activity plunged about 40% from the second to the third quater.

The slowdown was concentrated mainly in PE sector. Corporate M&A lost none of its vigour.

The PE volume fell by 50%. Before the credit crunch in August 2007, PE activity reached unprecedented levels, four times higher than it had been during the previous peak, in 2000. It represented more than 20% of M&A activity in the current boom.

Cross border activity now represents 40% of globla M&A up from 20% in 2000 and 30% in 2005.

Companies in emerging markets are active in cross border deals as buyers and sellers. Asia and West Asia now account for 15% of the global volumes. The volume increases in 2007 over 2006 in India, China and West Asia are 110%, 47% and 38% respectively.

The major global deals in Asia are Tata-Corus and Vodafone-Hutchinson Essar.

Mega deals defined as deals with a value of more than $10 billion contributed 30% of 2007 volume. That is above 10-year average of 20%. The number of deals was 45 in 2007 versus 54 in 2006.

Hostile takeovers generated 12% of global volume. This considerably higher than the 10-year average of 3%.

The year's average deal value added (DVA)-our measure of total value created for buyer and seller-reached 6.5%, well above the levels of previous two years.

The interesting finding is that acquirers' DVA has gone up from an average of -7.0% (1997-2004) to around 0.5% during the past three years. By contrast, the DVA for the shareholders of target companies, has remained largely stable, at 10%, throughout the past decade.

The standard deviation of DVAs reached 32%, significantly higher than it has been in all recent years except the 2000 peak.

The shares of bad deals (deals having DVA fo less than -15%0 reached a surprising 17% of total deals in 2007. This is three times more than the level in 2006 and it is around the level in late 1990s which was characterized by a significant overall destruction of value from bad M&A.

Average premiums paid decreased to 18% from 19% in 2006.
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Mint published one more article on 3 Jan 2008 on deals in 2007 pages 19,20

Deals totalled $4.5 trillion, 24% increase from 2006. (Thompson Financial)
Number of deals totalled 42,364 in 2007 versus 38,602 in 2006.

Each quarter more than 10,000 deals were announced.
Deals peaked in second quarter 11,082
last quarter 10,027

Eupore deals $1.8 trillion more than $1.7 trillion of USA.

Frank Yeary head of globla M&A for Citigroup
H. Boon Sim Head of Americas M&A group at Credit suisse
Doug Braunstein Head of IB americas for J P Morgan
Pero Novelli, Head of globla M&A, UBS AG

Sovereign wealth funds invested $60 billion

Biggest LBO $32.1 billion by KKR led consortium of TXU corp.

Also bid of $35.3 billion for BCE by an investor group that includes Providence Equity Partners

BHP Billioton's $145 billion offer for rival Rio Tinto

Top Advisors
2007

Goldman Sachs
Morgan Stanley
Citigroup
J P Morgan
UBS
Credit Suisse Group

Top Legal Advisors

London's Allen and Overry LLP
Sullivan & Cromwell LLP of NY
Freshfields Bruckhaus Deringer LLP of london
Skadden, Arps, Slate, Meagher & flom LLP of NY
Linlaters LLP of london
Clifford Chance LLP london

*Deallogic reported $4.7 billion for 2007