Goldman Leads In M&a as Inbev Bargain Fails to Add Fizz to
Chief executive officers of Bristol-Myers Squibb Co., Johnson & Johnson, Merck & Co. and Sanofi-Aventis SA have all said that they are actively looking for acquisitions. The Pfizer- Wyeth merger, when completed by year-end, will generate an estimated $207 million in fees for the advisers, which included Goldman Sachs and JPMorgan, according to data compiled by Bloomberg.
It was a propitious start to the year for the two firms, which finished No. 1 and No. 2 in the ranking of fees earned by M&A advisers in 2008. Goldman Sachs sat atop the heap in 2007 as well.
For JPMorgan, 2008 marked a climb to second place from fourth. Rounding out the top five 2008 earners: UBS, which climbed to third from fifth; Citigroup, which fell to fourth from third; and Morgan Stanley, which fell to fifth from second. The cheer spread by the Pfizer-Wyeth deal may have its limits. Overall 2008 M&A activity plunged to $2.5 trillion from a record $4.1 trillion in 2007 — at 39 percent, the worst year-to-year slide since the tech bubble burst in 2001.
Fees Plunge
M&A fees fell by 34 percent from 2007 levels while the number of deals plummeted by 17 percent and the average deal size declined by 20 percent. Bankers dont expect the M&A sector to improve much from 2008s depressed levels. Bloomberg year-end surveys of 400 financial professionals show 51 percent expect either at best no change in 2009 — or at worst a sharp decline.
Continuing credit woes and volatility in the stock market will act as brakes on M&A this year, says Lee LeBrun, co-head of Americas M&A at UBS. “Companies are still deleveraging and are having difficulty forecasting their business with conviction,” LeBrun says. Adds Jean Manas, head of Deutsche Banks M&A operations in the Americas, “When the market is so volatile, it is difficult to value companies.”
The decline was reflected in the results of the top five banks for M&A. While Goldman Sachs kept its No. 1 ranking, its fees plunged 43 percent from a year earlier. It served as target adviser, along with four other banks, for the years largest deal: Anheuser-Buschs $60.8 billion takeover by Belgian brewer InBev. Second-ranked JPMorgans fees fell 32 percent. UBS, in third place, suffered a 25 percent decline. No. 4 Citigroups fees plunged 41 percent. Morgan Stanley, in fifth, saw fees cut in half.
Dying Deals
Last year was also notable for the 768 deals — valued at $660 billion, according to Bloomberg data — that fell apart and the fees that evaporated. The biggest single bust: Melbourne- based BHP Billiton Ltd., citing the global rout in commodity prices and the credit market squeeze, abandoned in November its hostile $147.1 billion offer for London-based Rio Tinto Group.
The collapse of the merger between the worlds largest and third-largest mining companies cost investment banks, including Credit Suisse Group AG, Deutsche Bank, Goldman Sachs, JPMorgan and Morgan Stanley, about $365 million in projected fees.
Other missed deals included Microsoft Corp.s $42.3 billion unsolicited offer for Yahoo! Inc. and the 45 billion Canadian dollar (US$35.9 billion) leveraged buyout of BCE Inc., Canadas biggest telephone carrier, by a group led by Ontario Teachers Pension Plan.
Beyond the prospects of pharmaceutical mergers, optimism for 2009 lies in the hostile takeover arena, where companies with cash and access to credit look to scoop up firms whose valuations look attractive given the 38 percent decline as of mid-February in the Dow Jones Industrial Average since it peaked at 14,164 in October 2007.
One example already in play is another possible pharma deal. In January, Roche Holding AG made a hostile $86.50-a-share offer for Genentech Inc. after the South San Francisco, California- based biotech concern rebuffed an $89-a-share offer last July. The Basel, Switzerland, pharmaceutical giant, in a move similar to Pfizers acquisition of Wyeth, wants Genentech as a revenue booster after missing its profit estimates in the second half of 2008 and watching its stock get pummeled.
M&A advisers should also benefit from the need for restructuring and downsizing in an industry close to home — their own.
Banking on Banks
Banks and other financial institutions, walloped by exposure to subprime debt, accounted for a blizzard of M&A deals in 2008, starting in April with JPMorgans acquisition of Bear Stearns in an all-stock, $2.4 billion deal. That trend peaked in September, when Merrill Lynch agreed to sell itself to Bank of America for $40.5 billion in stock to avoid the fate of bankrupt Lehman Brothers.
This year is shaping up to be a rerun of 2008, as weak banks fail, seek healthy partners or radically restructure themselves a la Citigroup. Once the worlds largest bank by revenue, Citigroup was forced to take $13 billion in write offs in the third quarter of 2008, after four consecutive quarterly losses stemming from subprime investments and the credit crunch.
In January, it announced plans to split itself into separate businesses known as Citicorp and Citi Holdings after accepting $309Â billion in government guarantees to backstop toxic assets. Just last week, the U.S. government agreed to a third rescue attempt for Citigroup, sealing a pact that will cut existing shareholders stake in the company by 74 percent.