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back to index backAMERItalk January,  2006

The New Wave of Merger & Acquisition Action: More and Bigger Deals Are on the Rise

5 Minutes with Alan Alpert

Strategic buyers are back after a few years' hiatus and private equity (PE) groups are bigger and stronger than ever before. We asked Alan Alpert, the leader of Deloitte's Merger & Acqusitions practice and managing partner of Global Transaction Services, Deloitte Tax LLP, how this new trend will manifest in the U.S. and globally.

Taking a quick look over the M&A landscape, what strikes you as most notable about current market activity?

The first thing you notice is that strategic buyers are back. Over the last several months especially, large companies are coming off the sidelines and taking a hard look at strategic, add-on acquisitions. Consequently, we've seen some significant transactions in motion. In addition, a number of private equity groups are joining together, or clubbing,” to do big deals of their own.

What's significant about these two developments?

A few years ago, many observers thought we would stop seeing $20+ billion-type deals. The pundits said those days were history. But look around. We've seen substantial deals in the recent past, including MCI and Verizon, Chase and Bank One. And there's more of this kind of activity building. Why? Because companies need to grow their top lines, and they've exhausted cost-cutting as a way to get there. As for private equity groups, the clubbing concept represents a new twist.

Why would private equity groups come together like this?

To do big, interesting deals. Capacity is low, but deal values are high. There simply aren't enough deals out there to accommodate the capital they control—some of these funds control up to $7.5 billion right now—so they're looking to be part of the bigger deals. Capital continues to build and they need to deploy it, so they're pooling their money to be competitive in the big deals.

The increased activity in big transactions and the heightened involvement of private equity groups—are these primarily U.S.-driven phenomena?

It's both U.S. and Europe, although without a high level of cross-border transactions. For U.S. buyers, the Euro-to-dollar ratio is unfavorable. Conversely, Europeans are not showing much interest in U.S. companies. Just three months ago, many would have said that the European M&A market in general was down. But I didn't think so then, and I don't think so now. Again, private equity participation is making the difference. The European M&A market may look down relative to U.S. activity, but that's probably because Europe's private equity market is still a growing force in deals there. U.S. private equity is more than two decades old, but in Europe it's not even half that. Nevertheless, they're growing and some are in the $3 billion to $5 billion range now. So I think some large transactions in the European equity fund market are also driving the current uptick in activity worldwide.

What's your expectation for the coming months?

Primarily the momentum will build--more deals, bigger deals and more significant participation from PE groups. And the deals we see will be carried with discipline and careful deliberation. The lessons learned from the late '90s and the early part of this decade are driving more thoroughness in making the right choices.

In short, this will be a good year for solid deals in M&A.

Source: Deloitte Touche LLP - GAI

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