Buyouts are having a banner year.
The volume of acquisitions announced this year breaks the record set in 2000, as the total value reached an all-time high last week, even before a slew of takeover announcements were made on Monday that pushed it even higher.
As of Monday, the total value of announced acquisitions worldwide reached US$3.46 trillion for the year, exceeding the US$3.33 trillion level of announced deals reached in 2000, according to Dealogic.
"This is merger mania," Standard & Poor's senior index analyst Howard Silverblatt said.
In comparison, the GDP of Europe's largest economy, Germany, came in at US$2.48 trillion last year, according to the latest figures in the CIA Factbook.
Focus on US
Data from Dealogic shows the number of deals announced this year to be 28,312, lower than the 31,019 in 2000. The US remains the center of deal activity, accounting for 36 percent, or US$1.22 trillion, this year, down from 46 percent, or US$1.53 trillion, in 2000, according to Dealogic data from last week.
The intense acquisition activity is driven by the surplus of cash held by private equity firms and public companies alike, as well as interest rates that are at historic lows and the willingness of banks to provide financing. If current economic conditions persist, the whiplash pace of acquisition activity may go on.
An interesting aspect of this wave of acquisitions is the growing number of public companies that are being taken private, said Bob Filek, a Transaction Services partner at PriceWaterhouseCoopers who specializes in global M&A. Filek said it would take a decline in overall credit quality and greater concern over debt to put a damper on M&A deals.
On Sunday, the Blackstone private equity group agreed to buy Equity Office Properties Trust, the nation's largest publicly traded office-building owner and manager, for US$19 billion. Minus debt, the deal would be the third-largest leveraged buyout on record -- if it goes through -- behind the US$25.1 billion paid for RJR Nabisco in 1988 and the recent US$21.2 billion deal to take HCA Inc private.
Other deals announced on Sunday and Monday include: Freeport-McMoRan will acquire Phelps Dodge for US$25.9 billion in cash and stock; brokerage and financial services firm Charles Schwab Corp said it will sell its wealth-management subsidiary US Trust to Bank of America Corp. for US$3.3 billion in cash, and Canadian banking company TD Bank Financial Group said it would acquire the portion of TD Banknorth Inc it does not already own for about US$3.2 billion.
Peak
Anthony Sabino, an associate professor of business at St. John's University in New York, said acquisitions were likely to continue at a rapid pace well into next year, but have likely reached a crescendo this year.
"It's common sense, economic history and the basic rules of life that grandma taught you when you were a kid, that there are not enough good deals left," Sabino said. "There are too many big deals going on, the question has to be asked what good deals are left. And if there are not that many good deals left, then what is left? What's left is bad deals."
Of the top 10 biggest deals ever, eight have been announced since the beginning of this year.
After the HCA and Equity Office deals, the next largest acquisitions announced this year, minus debt, were: Clear Channel Communications Inc (US$18.8 billion), Free-scale Semiconductor Inc (US$17.7 billion), Harrah's Entertainment Inc (US$15.4 billion), Kinder Morgan Inc (US$14.6 billion), Univision Communications Inc (US$12.1 billion) and Albertson's Inc (US$11 billion), Thomson Financial said.
Meanwhile, in a speech on Monday, Treasury Secretary Henry Paulson said heightened regulation was a factor driving many public companies to revert to private status, facilitated by growing pools of private capital.
"This is occurring in record numbers, at record volumes, and, as a percentage of overall public company M&A activity, is approaching levels we have not seen in almost 20 years," he said.
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