Tuesday, January 11, 2011

Global Dealings hit $83 billion year-to-date, up from $67 billion in 2010

According to a recent article by Financial Times, a flurry of dealmaking by companies on both sides of the Atlantic has given the year the busiest start for mergers and acquisitions activity for a decade, firming up expectations of a bounceback in volumes as the economy recovers.
With deals worth $34 billion announced globally on Sunday and Monday, deal volumes so far this year have topped $83 billion, up from $67 billion in the same period last year.
That puts 2011 ahead of the boom years with deal volumes higher than in any year-to-date period since 2000.
Duke Energy agreed to buy US utility peer Progress Energy in a stock-based deal worth $13.7 billion, or $26 billion including debt.
Meanwhile, US chemicals group DuPont sought to shore up its position in the fast-growing food and nutrition industry, signing a $5.8 billion deal with Danisco of Denmark, the maker of food ingredients and enzymes. There have been many deals with unclear strategic fit I witnessed but this deal has topped my all-time-worst-deals list
Companies across a broad range of sectors are turning to M&A as they look for growth opportunities globally and consider spending the cash piles accumulated since the financial crisis.
US companies are estimated to have more than $1,000 billion in cash on their balance sheets and are expected to come under increasing pressure to put those funds to work or return money to shareholders.
In addition a lower-growth environment in the US and Europe may prompt companies to team up and create value through cost-cutting.
Duke, for example, said that it should be able to pass on $600 million - $800 million in savings to customers in North and South Carolina over five years, as a result of the deal with Progress, with potential for cutting costs expected to be greater still.
Improving equity markets have also helped drive activity. However, improving financing markets coupled with better valuations and desperate search for corporate growth force management and boards to look for more deal making activity.
Even Hugh Hefner, the 84-year-old founder of Playboy, on Monday agreed a deal to take the publisher private, after making an offer for the company in July.
Genzyme said it was discussing a possible transaction with Sanofi-Aventis after the French pharma group made an $18.5 billion hostile offer for the US biotech last summer.
Sara Lee, the food and household goods group, could also bolster the deal statistics. The company has been talking about a sale to Brazilian protein producer JBS and has attracted private equity interest. We were one of the first blogs to report this deal and will continue to monitor its progress.

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