Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
Popular Search: ARTICLES ON INPUT TAX CREDIT IN VAT :: cpt :: Central Excise rule to resale the machines to a new company :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: VAT Audit :: TDS :: ACCOUNTING STANDARD :: TAX RATES - GOODS TAXABLE @ 4% :: due date for vat payment :: empanelment :: VAT RATES :: list of goods taxed at 4% :: articles on VAT and GST in India :: ACCOUNTING STANDARDS :: form 3cd
Mergers and Acquisitions »
 Deals of the day-Mergers and acquisitions june 20, 2017
 How new funding avenues, M&As are powering India’s renewable energy sector
 Finance Ministry asks PSBs to explore acquisition of smaller banks
 Bank of Baroda, Canara Bank may lead next round of mergers
  Deals of the day-Mergers and acquisitions June 13, 2017
 India’s booming stock market has a downside: It’s making M&As expensive, says BNP Paribas
 Cross border mergers make India favoured FDI route: UNCTAD
 BNP expects challenging 2017 for India M&A deals as stocks rally
 Why Gulf mergers and acquisitions are back on the rise
 Sebi issues listing norms for NCDs in mergers and acquisitions
 Indian chemical industry: Will M&A be a game changer?

Don't expect many mergers and acquisitions
July, 29th 2009

Tough times are supposed to be the land of opportunity for the brave -- the time for opportunistic companies to take over market share from the weak or to snap up businesses with profit potential on the cheap.

So it would stand to reason that with stock investors expecting a rebound in the economy later this year, the merger and acquisition business would be starting to mimic the market's sharp rally.

But don't expect to see mergers driving up stock prices the way they did before the market peak in 2007, or during the go-go days of a decade ago. Despite some recently announced acquisitions -- such as Tuesday's agreement for IBM Corp. to buy software-maker SPSS Inc. for $1.2 billion in cash -- investment bankers say the merger market remains dormant.

For the first half of this year, the volume of deals worldwide was down 35 percent from a year earlier, and the lowest since the beginning of 2004, according to data from Dealogic. In the U.S., volume was down 45 percent this year, with $365.7 billion in deals announced.

In a sign of the times, the one area of great activity has been "distressed sales," which are essentially done at low prices by desperate companies while creditors or a bankruptcy judge breathe down the business' neck. During the first half of this year, the volume of distressed sales in the U.S. was the highest on record, Dealogic said.

Instead of going shopping for acquisitions, healthy companies are essentially in defense mode, cutting costs, hoarding cash and hunkering down to manage what they already have as cheaply as possible.

"Public companies are just trying to get their hands around their old businesses," said Pat Goy, managing director of Lincoln International, an investment banking firm. "They are trying to understand the next six months."

In this environment, businesses have come to think of "flat as the new up," he said.

He has discouraged entrepreneurs from selling their businesses now because companies are making low-ball offers -- often 15 or 20 percent below an appropriate price. It's similar to the housing market, where buyers expect to take advantage of desperate sellers.

The financial backdrop is a long way from the frenzied period in 2007, when private-equity funds had so much money to deploy they drove prices to extreme levels -- eventually leaving companies weakened by too much debt.

Now, many banks are hunkering down, too -- nursing old, at-risk loans, rather than taking a chance on new ones.

The deals that are getting done are happening slowly, said Jason Lobel, an investment banker at financial advisory firm Duff & Phelps.

"There is more due diligence," and buyers are expected to come up with more cash, Lobel said. "Usually, in M&A the buyer puts in 20 percent to possibly 40 percent. Now, it's 40 to 50 percent."

The situation has implications for stock and bond investors. Investors often buy small-cap stocks on the assumption that a larger company might eventually acquire them and leave investors with a windfall. But, Lobel said, "I would not buy a single stock as an acquisition target. Even those deals that are announced don't close."

Bond investors must also beware. In the past, if a company was growing weak, it could sell part or all of the business. Now, that option often is not available and "they bleed cash flow," Lobel said.

Consequently, distressed firms often become more distressed than they would have been in the past and cannot reorganize and instead liquidate, leaving bondholders with little or nothing, said Tom Atteberry, manager of FPA New Income bond fund.

Meanwhile, Goy said he thinks the M&A market will start to improve in 2010 as the economy also turns up. Typically, he said, companies depend on cost cutting in recessions. But as soon as revenues climb, they become aggressive about buying businesses that will position them for the upturn.

Home | About Us | Terms and Conditions | Contact Us
Copyright 2017 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - Our Portfolio

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions