Merger Update
In Bloomberg Brief: Mergers, Howard Lanser of Robert Bard & Co. gives thoughts on the middle-market deal pipeline:
On the deal pipline: In typical M&A recoveries, there are a lot of $10 billion plus deals (i.e. mega deals). Instead, around 60 percent of the deals have been middle market deals under $1 billion. There is still reluctance for large companies to do large deals, as most are looking for strategic deals that will be accretive in a low-growth environment.
On financial sponsors: The economic environment of 2009 and 1H 2010 was not favorable to sell a business. The economic data and earnings in 2H 2010 create a lot more favorable conditions, and will even be more favorable in 2011. Many business owners are beginning to ask how long are the ideal financing conditions going to last, which could limit the ability for buyers.
On Asian deals: The Japanese prefer local deals, and will go after deals they only want. The Chinese view this space differently. As we all know, China is a low-cost producer. China wants to have technologies and processes that will help move them up the value chain.
Private equity IPO's
Recent developments in the private equity markets have shown how much the industry shape has improved from the depths of the recession. Over the past week, Kinder Morgan and Neiman Marcus announced plans for IPO, in addition to Blackstone posting strong quarterly earnings. Although some of the deals that were completed at the peak in 2007 will never be profitable, favorable financing conditions have allowed these companies to refinance and extend debt maturities at lower rates.
Equity Deals Rebounding with IPOs (click here)
Kinder Morgan to Go Public (click here)
Blackstone Posts 56% Rise in Quarterly Profit (click here)
Reverse takeovers
Reverse takeovers are something that are gaining more and more prominence in U.S. capital markets. Primarily, reverse takeovers have been used by Chinese companies and some Israeli tech companies. Since the majority of these reverse takeovers are Chinese companies, there have been more and more people telling investors to be alert for these takeovers.
A reverse takeover (RTO) is:
...accomplished when a privately-held operating company acquires a publicly-traded entity. The idea is that the latter not be a legitimate business but, essentially, a corporate shell. These aren’t hard to find. If you remove all liquidity filters from your own screens, you may find many penny stocks that are little, if any, more than shells. After the takeover is completed, the managers of the acquiring firm take control over the newly merged entity and usually change its name to match that of the privately-held business. Voila! A privately held business is now associated with trade-able U.S. stock. If the stock already has a NASDAQ listing, so much the better. When the RTO is completed, listing applications are filed for those that aren’t yet listed.
The article goes into the pros and cons for reverse takeovers. Pros include a fast and inexpensive way for a company to gain access to capital markets, less time than an IPO, and brings more companies into securities markets. The one I found most interesting is its a fast and easy way for a company to gain access to capital markets. The story highlighted the struggles that companies like Apple had when going public because regulators were scared that normal retail investors did not possess the knowledge to fully understand their investments. Between the fraud of the tech bubble and recent Wall St. bailouts, no wonder why RTO's have come under increased scrutiny. But, what is important is that growing companies need access to capital markets. If the RTO is the way for them to do so, then great!
The long-and-short of it is investing in companies that go through an RTO are risky, and investing in those that do not is is risky. But, buyer beware because these companies often are in the corners of the market most unfamiliar to regular investors.
Reverse Takeovers: The Poor Man's IPO Deserves Some Respect (click here)
Government IPO's
Ally Financial (the former GMAC) has chosen the lead banks for its IPO. The banks that will complete the Ally IPO, in addition to the other IPO's for the bailed out companies, will only receive a fraction of the fees if they were private businesses. Banking chiefs actually consider this an honor as they feel they will help taxpayers earn a profit on these deals.
The Bailout Stock Sale Action (click here)
Treasury Warrior at the Negotiating Table (click here)
John Paulson's January
I have recently has a few posts on John Paulson highlighting strong performance for 2010. The new year has not been so kind to Mr. Paulson, as his funds showed negative returns for January. The declines are primarily due to the decrease in gold prices over the month of January.
January Not Golden for Paulson (click here)
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