While Wall Street has been abuzz about a recent run of high-profile mergers and acquisitions, many of them -- including Monday's US$5.8 billion acquisition of Siebel by Oracle, eBay's US$2.6 billion buyout of Skype and Wachovia's US$3.4 billion acquisition of Westcorp -- happen to be pretty humdrum.
While these deals are often dressed up as radical, industry-changing events, they are hardly like the major transactions announced in the late 1990s and early 2000 that tried to revolutionize business models and redefine markets -- like the merger of Citicorp and Travelers or Vivendi's merger with Seagram. Today's deals are basic add-ons -- as in a homeowner adding a room to a house, not a gut renovation. On Wall Street, these deals are called "bolt-ons."
"This is still a lot of blocking and tackling," said John Finley, a partner at the law firm of Simpson Thacher & Bartlett who specializes in mergers and acquisitions. "I'm not seeing the kind of vision thing associated with a frothy market."
Even Procter & Gamble's US$57 billion acquisition of Gillette, the year's biggest, most ballyhooed deal, is not much more than a huge bolt-on, adding distribution and product mix, but not changing the firm's fundamental business model or taking it into completely new markets.
"These are classic consolidation plays," said Boon Sim, head of mergers and acquisitions for the Americas at Credit Suisse First Boston. "People are not going to step up and do something really out of the box unless it is really strategic. We're still in the early stages of the M&A cycle."
While the deals may feel less inspiring, the pace has still been quick. Richard Peterson, chief strategist at Thomson Financial, a firm that tracks deal data, is predicting that there will be more than US$1 trillion worth of deals this year. Already, deal-makers are outpacing themselves over last year: US$707 billion of deals have been announced this year, compared with US$545 billion in the period last year, according to Thomson.
Much of that volume is from deals being driven by private equity firms, which are increasingly buying up corporate assets. By some accounts, private equity transactions represent 15 to 20 percent of deal volume.
While there have been some out-of-the-box transactions -- the New York Stock Exchange's merger with Archipelago is one -- most corporations are still reticent about venturing beyond their traditional business, because investors do not always look favorably on such efforts.
EBay's deal for Skype, the Internet telephone company -- perhaps the closest recent deal resembling anything revolutionary -- received a decidedly mixed reaction from investors. While eBay's stock rose US$0.32, to US$38.94, on Monday, its stock is still down compared with where it traded last week before word of the negotiations leaked.
So will the big, big deal ever come back? Don't bet on it, at least not yet.
"People are much more sober," said Paul Taubman, who runs the mergers and acquisitions practice at Morgan Stanley. "People are much more upfront about the metrics. They understand which deals people will like and which ones they won't."
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