Corporate Financing: Mergers & Acquisitions

Cross-Border M&A; Ready For Takeoff, With Emerging Markets As Main Target

By Gordon Platt

The stars are aligned for a substantial rise in cross-border mergers and acquisitions this year, as the global economy recovers and financing becomes more readily available. There is considerable pent-up demand as a result of deals postponed in the past 12 months, when companies focused on making sure they had adequate cash on hand to survive the crisis, analysts say. CEOs are hunting for foreign acquisitions that make strategic sense and that are likely to boost their companies’ earnings as economies around the world rebound. The best prospects for economic growth are in the emerging markets.

Telecommunications, food and beverages, and utilities are likely to be the hottest sectors for cross-border deals in 2010, according to a forecast by Thomson Reuters and J.P. Morgan. Rising consumer spending in emerging markets will prove to be a strong magnet for attracting foreign buyers, particularly those companies based in the slower-growing industrialized countries. Meanwhile, rising electricity demand and the need to develop renewable energy sources for power will prompt a surge of activity in the utility sector, aided by further privatizations in emerging markets.

“In 2010 and beyond, we anticipate unprecedented cross-border deal flow among the emerging markets, and this prominently includes transactions between Indian and Russian companies, as well as between Indian and African companies,” says Stephen Jennings, CEO of Moscow-based Renaissance Group, which includes Renaissance Capital, a leading investment bank in Russia, the Commonwealth of Independent States (CIS) and Africa.

Russian, Indian Banks Team Up

Renaissance Capital and Mumbai-based Kotak Investment Banking announced an agreement in December 2009, which is already in effect, to cooperate on cross-border M&A; advisory assignments between the emerging markets in which they operate. In the resources sector, Indian companies are actively seeking to acquire energy and mining assets in the CIS and Africa, Jennings says. “India’s fast-growing economy also offers huge opportunities for companies from [Renaissance Capital’s] geographies,” he says.

China is likely to be the most acquisitive nation in the year ahead, as it seeks to expand its access to foreign technology and natural resources. Whether it will have any more success than in the past in purchasing companies in the United States, however, seems unlikely due to political pressures, analysts say. Nonetheless, sovereign wealth funds will continue to look for good returns on their investments in global markets.

While credit markets are easing for some participants, financing will remain the main challenge to M&A; activity in the United States in 2010, increasing the pressure on middlemarket deals, according to PricewaterhouseCoopers’ New York-based transaction-services practice. Strategic buyers with strong balance sheets and a lot of cash on hand will be in a good position to maneuver in this restricted environment and will pursue deals with a focus on synergy, it says.

Best Values in Recent Times

“Those who have built their balance sheets for a rainy day might come out of last year’s storm to find the rainbow and, at the end of it, nicely valued acquisition targets that provide opportunities for revenue growth and enhanced productivity,” says Bob Filek, partner with PwC Transaction Services. “As a result, M&A; activity in 2010 will be driven by strategic buyers who have access to capital and the strategic vision to capitalize on some of the best values we have seen in recent times.”

Companies have already cut costs, and to drive further efficiency they will look to combine with similar competitors to increase scale, drive revenue growth and improve margins, Filek says.

Greg Peterson, another partner at PwC, says there is still more than $1 trillion of capital committed to alternative investment funds that is sitting on the sidelines, waiting for the appropriate opportunities. “The diversified private equity players have been bulking up their debt, hedge and distressed [opportunity] funds, reflecting their ability to evolve and successfully navigate choppy waters,” he says.

Meanwhile, the IPO (initial public offering) market has been re-established as a viable exit vehicle for private equity investments, Peterson says. The divestitures market will also be active, as more companies decide to unload holdings they do not consider to be part of their core business. The percentage of M&A; activity attributed to divestiture transactions has begun to increase in recent months, according to PwC.

Guardedly Optimistic

The year-end 2009 survey of M&A; professionals by the Association for Corporate Growth (ACG) and Thomson Reuters found that dealmakers were guardedly optimistic about 2010. The percentage of survey participants who expect an increase in merger activity in the next six months rose to 82% from 56% when the previous survey was released in June 2009.

“Dealmaking continues to be caught in the doldrums, with limited activity outside of distressed sales and select strategic investments, but the fact that merger professionals express heightened optimism about 2010 is a hopeful sign that a freshening wind will arise,” says Dennis White, ACG chairman and senior counsel at international law firm Mc- Dermott Will & Emery. ACG’s members are middle-market dealmakers worldwide.

Harris Williams, a subsidiary of Pittsburgh, Pennsylvaniabased PNC Financial Services and one of the largest M&A; advisory firms focused on the middle market, is opening a London office as part of an international expansion. The firm says it anticipates increased global M&A; activity throughout 2010.

Thierry Monjauze, former co-head of European technology investment banking at Deutsche Bank, was named to head Harris Williams’ London office. “We continue to build our platform to position the firm for future growth,” says Chris Williams, co-founder of Harris Williams. “We have considerable experience serving clients globally and expect Europe, in particular, to be an area of opportunity within the middle market,” he says.

Fundamental to any pickup in M&A; activity is economic growth, according to the latest report from Thomson Reuters and J.P. Morgan. “Business conditions for companies to consider undertaking M&A; are improving,” it says.

A double-dip recession is a potential wild card that could spoil the sunny outlook and rain on the M&A; parade, according to Filek of PwC Transaction Services. “However, while we may see some challenges and market disappointments in 2010, the underlying fundamentals will outweigh the shortterm stress, and companies will stay committed to their strategic vision and complete a lot of transactions,” he says.

Global M&A; totaled $2.1 trillion in 2009, a decline of 28.2% from 2008, according to Thomson Reuters. While that was the lowest total since 2004, the trend showed improvement throughout the year. The fourth-quarter total of $625 billion was the highest since the third quarter of 2008. In terms of number of deals, the 2009 total of more than 38,000 was down only 6.6% from a year earlier.

Morgan Stanley led worldwide deals announced in 2009 by value, followed by Goldman Sachs, which slipped from the top spot for the first time in the decade. J.P. Morgan, Citi and Credit Suisse completed the top five listing of financial advisers in 2009.

Two pharmaceutical mergers were the biggest transactions of last year. Pfizer’s $64.4 billion acquisition of Wyeth was the largest, followed by Merck’s $45.7 billion acquisition of Schering-Plough.

ExxonMobil’s $40.6 billion acquisition of natural gas producer XTO Energy, announced in December, was the largest deal in the energy and power sector in 2009.




Date Announced

Target Name

(Target Advisers)


Acquirer Name

(Acquirer Advisers)

Country Description

Ranked Value



XTO Energy

(Barclays Capital) (Jefferies)



(J.P. Morgan)

US Agreed to acquire oil and gas company in a stock-swap transaction;includes assumption of $10 billion in liabilities. 40.66



NBC Universal (J.P. Morgan) (Goldman Sachs) (Citi) US Comcast (Morgan Stanley) (UBS Investment Bank) (Bank of America Merrill Lynch) US Definitively agreed to acquire owner and operator of TV broadcasting stations from GE in the formation of a joint venture.





12/14/09 Wells Fargo Advisors (Barclays Capital) US Wells Fargo (Greenhill) (Wells Fargo Bank) (Goldman Sachs) (Lazard) US Planned to acquire the remaining 38% stake, which it did not already own, in securities brokerage firm from its joint-venture partner, Prudential Financial.





12/3/09 Universal Studios Holding III (Barclays Capital) (Societe Generale) US GE (J.P. Morgan) (Citi) (Goldman Sachs) US Agreed to acquire the remaining 61.7% interest, which it did not already own, from Vivendi.




12/16/09 Station Casinos (Lazard) US Boyd Gaming (Greenhill) US Planned to acquire bankrupt casino hotel owner and operator, for cash and assumption of liabilities.




12/3/09 Universal Studios Holding III (Barclays Capital) (Societe Generale) US GE (J.P. Morgan) (Citi) (Goldman Sachs) US Agreed to acquire a 38.3% stake from Vivendi, for cash.







12/31/09 Ligh (Banco BTG Pactual) Brazil Cemig Brazil Unit of state-owned Minas Gerais agreed to acquire a 39.09% stake in electric utility, in a privately negotiated transaction.







12/18/09 Cimpor Cimentos de Portugal (BNP Paribas) (Morgan Stanley) Portugal Cia Siderurgica Nacional (Banco Espirito Santo) Brazil Planned to launch an unsolicited tender offer to acquire manufacturer of hydraulic cements. 8.08
12/23/09 Cie la Lucette (Morgan Stanley) France Icade (UBS Investment Bank) (Societe Generale) France Unit of state-owned Groupe Caisse des Depots & Consignations agreed to acquire a 94.5% interest from unit of Morgan Stanley real estate fund. 2.86
12/18/09 Immoeast (Deutsche Bank) Austria Immofinanz (Kempen) (Morgan Stanley) Austria Agreed to acquire the remaining 45.36% stake it did not already own in real estate investment firm, in a stock-swap reverse takeover. 2.12
12/11/09 Credit du Nord (Rothschild) France Societe Generale (Societe Generale) (Citi) France

Acquired the remaining 20% stake, which it did not already own, in commercial bank, from Dexia.

12/18/09 Natixis Global Asset Management (BNP Paribas) (Bank of America Merrill Lynch)


Natixis France Acquired the remaining 11.34% stake that it did not already own. 0.99
12/2/09 Pyrichos Greece Geniki Bank of Greece Greece Majority-owned unit of Societe Generale acquired a 16.12% stake in bank. 0.47


12/9/09 Suzuki Motor Japan Volkswagen (Morgan Stanley) Germany Agreed to acquire a 19.89% stake, in a privately negotiated transaction. 2.53
12/31/09 Daewoo Engineering& Construction (Nomura Securities) South Korea Korea Development Bank South Korea Planned to acquire a 50% interest plus one share from Kumho Asiana. 2.47


China Citic Bank (Merrill Lynch) China BBVA (Banco Bilbao Vizcaya Argentaria) Spain Exercised its option to raise its stake to 15% by acquiring a further 4.93% stake, in a privately negotiated transaction.







eMobile (Goldman Sachs) (Nomura Securities) Japan eAccess (Deloitte Tohmatsu) Japan Agreed to acquire the remaining 57.45% interest, which it did not already own, in provider of mobile broadband service, in exchange for newly issued shares.





Bank of East Asia Hong Kong Criteria Caixa Spain Agreed to raise its stake to 14.99% by acquiring a further 5.18% stake, in a privately negotiated transaction.





Max India India Xenok (Goldman Sachs) India Unit of GS Capital Partners planned to acquire debentures convertible into a 9.4% stake in provider of insurance and health services.