January’s Pace Foretells Another Big Merger Year
U.S. merger and acquisition activity announced during January outpaced that of all Januarys this decade, signaling that 1999 may match or even surpass last year’s record level of merger mania, according to Securities Data Co.
Although one month does not a year make, specialists said the need to compete in a global economy and increase shareholder value through larger size will continue to compel mergers in 1999.
There were 721 announced merger and acquisition deals valued at $130.9 billion last month, compared with 958 deals worth $88.7 billion in the same period last year, according to Securities Data, a New Jersey research firm.
If the trend holds up, 1999’s total may approximate 1998’s record-setting mark of $1.62 trillion, analysts said.
“It’s a continuation of what was happening in all of 1998,” said Mark Clemente, a merger consultant and author of the 1998 book “Winning at Mergers and Acquisitions.”
“Until we see some kind of major [market] bust, I think things will continue at this kind of clip for quite a while,” Clemente said.
The action also continues to heat up in Europe. On Monday, French banking giant Societe Generale said it will buy investment banking firm Paribas for $17.1 billion in stock. The deal would create Europe’s second-largest bank.
In the United States, the industries that saw the highest volume of merger activity last month were telecommunications, communications equipment and prepackaged software, according to Securities Data.
By comparison, telecommunications, business services and computer and office equipment were the top merger sectors during January 1998.
“Market leaders are wanting to cement their lead, especially in the media/telecom area,” said Todd Jadwin, a managing director with BankAmerica in Los Angeles. “It’s hard to justify internally growing something when it’s cheaper to buy,” he added, referring to the highly valued stock many firms use as buyout currency.
Bankers in Jadwin’s office are working on six merger and acquisition deals, some involving local companies. “A lot of companies are studying a lot of companies,” he said.
January’s largest deal by far was Vodafone Group’s plan to acquire AirTouch Communications Inc. for $65.9 billion, announced on Jan. 18. This mega-deal accounted for about half of merger dollar volume for January, and without it the month would not have surpassed January 1998’s record.
The second-largest deal was Lucent Technologies Inc.’s $21.1-billion bid for Ascend Communications Inc., announced on Jan. 13.
Other major deals included Yahoo Inc.’s plan to acquire GeoCities for $3.7 billion, signaling continued consolidation among Internet companies this year. In fact, the media, Internet and telecommunications areas are all expected to see strong merger activity this year.
“On the telecom side, we’ve just begun to see international deals--there is a long way to go there,” said Kenneth Smith, head of global merger and acquisitions for Mitchell Madison Group, a consulting firm based in Toronto. “These deals we’ve seen so far don’t even begin to address the globalization of the industry.”
That’s true of many industries, experts said, as businesses restructure to compete globally, with larger firms merging with other large firms and smaller ones either becoming niche players or being purchased by the giants.
Most of this year’s mergers will take the form of stock swaps as long as a strong stock market continues to provide many companies with the highly valued currency they can use to make acquisitions. Indeed, the five biggest deals so far this year have been stock swaps.
A severe stock market decline is the only thing that will slow down the merger train, experts agree.
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The January Jump
U.S. merger and acquisition activity last month outpaced all other Januarys this decade, with $130.9 billion worth of deals announced. Januarys, in billions of dollars:
January 1999: $130.9
Source: Securities Data Co.
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January’s Biggest Merger Deals
Last month’s largest deal was AirTouch Communications’ planned $65.9-billion merger with Vodafone Group. Ranked by estimated deal value at announcement:
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Total value, Date Target company Acquirer in billions 1/18 AirTouch Communications Vodafone Group $65.9 1/13 Ascend Communications Lucent Technologies 21.1 1/19 Excite @Home 6.0 1/27 GeoCities Yahoo 3.7 1/26 Agouron Pharmaceuticals Warner-Lambert 2.2
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