M&A Market Update 2007

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Update on the global and US M&A market for 2007 and small commentary on IFRS relevance to M&As. Presented at the NY/NJ/CT Chapter of ACCA.

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M&A Market Update 2007

  1. 1. ACCA, NY/NJ/CT Chapter Meeting 2007 M&A Update Pete Chatziplis Williams Club, New York April 2, 2008
  2. 2. Topics Global M&A activity Current M&A trends in the US US M&A Deal Analysis: sectors and sizes Sources of financing: what’s the role of private equity? Areas of importance in planning and executing an M&A IFRS and M&As Q&A session M&A Update: ACCA Chapter Meeting, April 2, 2008 1
  3. 3. Global M&A Activity 2007 a record year for Global M&As: – Total Global M&A Deal Value in 2007 $ 3.6 trillion ($3.7 trillion in 2006) – North America: $ 1.58 trillion, 9% growth/ 4,950 deals – Europe: $1.4 trillion, same as in 2006/ 6,290 deals – Asia: $ 430 billion, 5% growth/ 2,700 deals 2007 Deal Value by Region 2007-2006 Deal Value 4,000 3,500 $440m $180 $430 3,000 $410m * Other, $180, North 2,500 5% $1,400 America, $1,400m $1,580, 44% 2,000 Asia-Pacific, 1,500 $430, 12% 1,000 $1,450m $1,580 500 Europe, $1,400, 39% 0 2006 2007 Other includes: Latin America, Africa, Middle East. North America Europe Asia-Pacific Other Source: Mergermarket, The Comprehenisve Review of North American Mergers & Acquisitions, Mergermarket Full Year 2007. M&A Update: ACCA Chapter Meeting, April 2, 2008 2
  4. 4. Top 2007 Deals Globally • RBS-Fortis-BSCH/ABN Amro €71bn Banks • Altria Group/Kraft $61 bn Consumer • Enel&Acciona/Endesa €48 bn Energy • Providence,Madison,Teachers/BCE $44 bn Telecoms • KKR,TPG,GS/TXU Corp $44 bn Energy • Rio Tinto/Alcan €32 bn Industrials • Unicredit/Capitalia €22 bn Financials • KKR&Pessina/Alliance Boots €18 bn Consumer • KKR/First Data $27 bn Business Services • TPG,GS/Alltel $27 bn Telecoms • Blackstone/ Hilton $25 bn Leisure • Bank of America/LaSalle €15 bn Financials M&A Update: ACCA Chapter Meeting, April 2, 2008 3
  5. 5. North American M&A Activity 2007 a record year in the US: – Q2 ’07 the highest M&A value ever ($600 billion) – Slowdown in 2H’07 due to credit crunch – Main Sectors: Financial Services (17%), Energy & Mining (16.5%), Industrials (16%), TTM (17%); life sciences (8%) – Northeast, West, Midwest, Southeast the more active regions North American Deal Value North American Deal Volume Source: Mergermarket, Deal Drivers, A Comprehensive Review of European M&A s, Full Year Edition 2006. M&A Update: ACCA Chapter Meeting, April 2, 2008 4
  6. 6. North American M&A Activity – Deal Size 2007 a mega-deal year; middle market is strong: – Continued increase in average size; deals over $500 m totaled $1.35 trillion (85% of total); 495 transactions – Significant middle market activity: 720 deals for a total of $170 billion – largest LBO ever: KKR,TPG,GS/TXU at $45 billion 2007 M&A Deal Split (Value) 2007 M&A Deal Split (Volume) Source: Deal Drivers, The Comprehensive Review of North American Mergers & Acquisitions, Mergermarket Full Year 2007. M&A Update: ACCA Chapter Meeting, April 2, 2008 5
  7. 7. Cross-Border M&A Activity Cross Border activity grows: – Record year in transatlantic deals; $330 billion (1,040 deals) – Increase in European buyers – Factors: Strategic activity; cash availability in PEs; weakening US$ – Significant Deals: Rio Tinto/Alcan, Thompson/Reuters – Rise of Sovereign Wealth Funds Transatlantic Deals (Value) Transatlantic Deals (Volume) Source: Deal Drivers, The Comprehensive Review of North American Mergers & Acquisitions, Mergermarket Full Year 2007. M&A Update: ACCA Chapter Meeting, April 2, 2008 6
  8. 8. North American M&A Activity-PE PE sector critical but in crisis: $500 billion in buyouts in 2007; 35% of total activity Record activity in 1H ‘07, slowdown thereafter Many mega-deals canceled Fall in valuations due to credit tightening Blackstone IPO Buyouts and Exits by Value Buyout deal size by value Source: North American Private Equity in Review, Mergermarket, February 2008. M&A Update: ACCA Chapter Meeting, April 2, 2008 7
  9. 9. M&A Pricing Trends Median Enterprise Value to EBITDA Multiple Median EV/EBITDA- US Increase in Valuations: 12.0x U.S. Deals 11.1x 10.6x 10.4x 10.2x 10.0x average multiple reached 11x 10.0x 9.9x in 2007 8.5x 8.4x 8.5x 8.4x 8.0x Higher multiples offered in electronics and large deals 6.0x Cash rich PEs; average 4.0x 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 multiple from 4.2X to 8.5X Source: Thomson Financial Includes only posit ive mult iples less than 25x. Median Enterprise Value to EBITDA Multiple Strategic buyers buy at a Median EV/EBITDA- US < $250m Strategic vs. Financial Buyers - U.S. Deals Less than $250mm 14.0x premium over PE 11.2x 11.0x 10.4x 10.6x 10.5x Mainly cash-deals 8.8x 8.7x 8.4x 8.5x 7.6x 7.6x 7.2x 7.0x 5.0x 4.2x 4.0x 3.5x 0.0x 2001 2002 2003 2004 2005 2006 2007 Strategic Buyers Financial Buyers M&A Update: ACCA Chapter Meeting, April 2, 2008 Source: Thomson Financial Includes only positive multiples less t han 25x. 8
  10. 10. North American M&A Activity-Themes Credit crunch; unavailability of debt financing (LBOs) Many deals were aborted (“the year of the MAC”); mortgage /real estate sector seriously hit: – Sallie Mae/ JC Flowers, BofA, JPMChase, $25 bn – Clear Channel/ Bain, Thomas Lee, $19.5 bn – Home Depot/ Bain, Carlyle, Clayton Deubilier & Rice $10.3 bn – PHH/ Goldman Sachs, $1.8 bn Fall in valuations (EV/EBITDA) Markets believed to recover in a year Cross-border activity gaining pace Deals take longer time M&A Update: ACCA Chapter Meeting, April 2, 2008 9
  11. 11. M&A Update: ACCA Chapter Meeting, April 2, 2008 10
  12. 12. Damodaran – 7 sins in Acquisitions 1. Risk Transference: attributing acquiring company risk characteristics to target firm 2. Debt subsidies: subsidizing target firm for the strengths of the acquirer 3. Auto-pilot Control: The “20% control premium” and other myths… 4. Elusive Synergy: Misidentifying and misvaluing synergy 5. It’s all relative: Transaction multiples, exit multiples.. 6. Verdict first, trial afterwards: Price first, valuation to follow 7. It’s not my fault: Holding no one responsible for delivering results M&A Update: ACCA Chapter Meeting, April 2, 2008 11
  13. 13. Successful M&As – Best Practice Five Disciplines: Establish Clarity of Purpose Safeguard Parent Power Know your Target Provide Incentives to Execute Integration Planning Source: Deloitte, Making the Deal Work, Avoiding Merger Failure (page 5 and 17) M&A Update: ACCA Chapter Meeting, April 2, 2008 12
  14. 14. M&As and IFRS - Background Increasing importance of IFRS: – Most of major economies have or will adopt IFRS (at least for listed companies) by 2011 – SEC endorsed IFRS for foreign issues, considering for all A large part of M&As in IFRS domiciles – More than 40% (Europe, China) Increasing level of cross-border M&As: – Transatlantic – Asia M&A Update: ACCA Chapter Meeting, April 2, 2008 13
  15. 15. The World of IFRS Canada 2011 Russia & CIS Europe 2006 2005 US Foreign Listed Japan, China 2007 S. Korea 2007 2010-11 Caribbean Middle East India Central America 2011 South East Asia Brazil 2010 Australia 2005 South South Africa America 2005 Required/Permitted Not Permitted Source: www.iasplus.com and Deloitte analysis. To be introduced No information available M&A Update: ACCA Chapter Meeting, April 2, 2008 14
  16. 16. IFRS & Capital Markets Most stock exchanges already under IFRS – 31 stock exchanges, 44% of global market cap Capitalization of Exchanges (2006-2007) Exchanges by Capitalization Non IFRS, $2.3 tr, 4% IFRS, $27.7 tr, 44% IFRS domiciles 2007 6.0 NYSE out of scale IFRS domiciles 2006 US, $19.9 tr, 32% MCap07(’06) $15.7 ($15.4)tr Non-IFRS domiciles 2007 5.0 Non-IFRS domiciles 2006 IFRS-to be adopted, 4.0 $12.7 tr, 20% US$ tr 3.0 Number of Exchanges Non IFRS, 10, 20% 2.0 US, 3, 6% IFRS, 31, 60% 1.0 IFRS-to be adopted, 7, 0.0 14% o dia e n rg To on g Tu si a Ko ic a n as t m t e n o M re ro o at rid st l o To E O Sw n g ai Ta en ha Ita a Lo aq Fr onto ey n g an M slo M y X iss Bo kf ur N ex ic lia Sh o n n lia Eu ky ba d re YS Au Pao Sh sbu on h o ad nd rk d or zh Si iw Sa . In ex ay n H ng O ap ra K an r N N al Source: World Federation of Exchanges, December 2007, N M www.iasplus.com and Deloitte analysis. Jo M&A Update: ACCA Chapter Meeting, April 2, 2008 15
  17. 17. IFRS Statements with implications in M&As IFRS 3: Purchase Price Allocation – Significant part of Intangibles in PPAs – P/E, Capitalization issues IAS 36 (impairment test) IAS 38 (intangibles) Fair Value (under discussion) M&A Update: ACCA Chapter Meeting, April 2, 2008 16
  18. 18. Q&A ? M&A Update: ACCA Chapter Meeting, April 2, 2008 17

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