RESEARCH PRIVATE EQUITY RAIL BACKING M & A TRAIL By Mr. Ashwani Batra, Senior Analyst, Global Strategy & Investment Consulting, Planman Consulting (India) Pvt. Ltd. 70 Need the Dough July-October - 2007
MERGERS & ACQUISITIONS An abundance of private equity dollars, a favorable financing market, and strategic players wanting to expand geographic, demographic, and product reach are all contributing to a steady pace of M&A activity. As we consider the landscape for corporate transactions in mid-2007, the fundamentals are in line for a healthy merger and acquisition environment across all sectors. And although no blockbuster deals are percolating at present, the confluence of positive economic and market factors should prove fruitful for both buyers and sellers. Global M&A activity reached record highs as the volume of <strong>global</strong> deals in 2006 increased to over US$3.8 trillion, representing a 37.9 per cent increase from 2005. This surpassed the previous record of $3.4 trillion set in 2000, with announced deals in the fourth quarter of 2006 alone totaling approximately $1.3 trillion. Private equity transactions were some of the primary drivers of M&A activity: in 2006 they totaled $757.6 billion worldwide, or approximately 20 per cent of total M&A activity. In 2006, 2,354 private equity transactions were announced, which represented a 172 per cent increase from 2005. One of the most notable features of LBO activity was the surge in deal size. Topping the charts was <strong>The</strong> Blackstone Group’s $39 billion acquisition of Equity Office Properties Trust, which was the largest LBO in history at the time. Blackstone increased its original $36 billion price to top a competing offer by a rival strategic buyer that emerged after Blackstone had entered into a definitive merger agreement with the target company. Other major private equity transactions in 2006 included LBOs of HCA ($33 billion), Kinder Morgan ($27.5 billion), Harrah’s Entertainment ($27.4 billion) and Clear Channel ($26.7 billion). In deals with US targets, private equity involvement climbed to record levels as more than $414.6 billion fi nancial sponsor transactions occurred in 2006 on the buyers’ and sellers’ sides, which represented just over a quarter of all US M&A activity. Private equity deals accounted for half of the top 10 M&A deals in the US and one quarter of the overall values. Europe accounted for 36 per cent of <strong>global</strong> private equity transactions by target region. <strong>The</strong> largest European LBO was the acquisition of VNU by AlpInvest, Blackstone, the Carlyle Group, Hellman & riedman, Kohlberg Kravis Roberts & Co (KKR) and Thomas H Lee Partners for $11 billion. Other leading European private equity transactions included LBOs of AWG ($10 billion), Phillips Semiconductor ($9.5 billion), Kion ($5.7 billion) and PagesJaunes $4.2 billion). Mergers and acquisitions involving private equity funds in the Asia-Pacific region totaled $37.7 billion in 2006, which represented a 7 per cent increase on 2005. North Asia deals amounted to $10.4 billion, led by Goldman Sachs’ $2.6 billion investment in Industrial & Commercial Bank of China, CVC Asia Pacific’s $2 billion bid for Australian radiology company DCA Group and the $1.5 billion offer for Taiwan’s China Network Systems by MBK Partners. India deals jumped to $3.1 billion from $764 million in 2005, with the largest purchase being the acquisition of Electronics Software Systems by KKR. In the biggest Asia-Pacific private equity transaction of the year, announced in Decem- Worldwide Mergers & Acquisitions Overall M&A WW PE M&A Value Value % of ($mil)| Deals ($mil)| Deals Total 1995 925.2 19,688 28.0 584 3.0 1996 1,116.7 23,853 33.8 612 3.0 1997 1,640.0 25,898 52.5 758 3.2 1998 2,493.1 29,376 59.0 942 2.4 1999 3,265.4 32,183 107.4 1,327 3.3 2000 3,400.0 38,716 97.3 1,795 2.9 2001 1,687.0 30,174 63.9 1,315 3.8 2002 1,208.6 26,482 106.4 1,196 8.8 2003 1,360.9 28,830 128.8 1,561 9.5 2004 1,865.3 31,543 237.7 2094 12.7 2005 2,699.5 33,636 321.5 2700 11.9 2006 3,600.7 37,839 750.0 3293 20.8 2007* 2,179.3 14433 447.4 1238 20.5 July-October - 2007 Need the Dough 71
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