The Frenzy of M&A Spree

M&A came to $3.79 trillion in 2006, 38% higher than in 2005, according to the data from Thomson Financial. Europe registered 39% more deals than in 2005 with amounts of $1.43 trillion. U.S. grew 36% higher than in 2005 and came in at $1.56 trillion. Private equity firms snapped 20% of global M&A activities last year, marked a golden era for them. But there are some intriguing things left for us to find out.

Private equity firms with $660 billion in corporate buyouts last year and a war chest of $750 billion will to deploy, investors are on a roll, but concerns about the sector’s ability to deliver sizeable return are also welling up. There is too much money chasing for too few good deals.

Talking about exit strategies, secondary-IPO, a sale to the strategic buys in the same industry, or selling to other private equity firms.

Some economists believe that secondary IPOs are undertaken when the owners believe that the potential overvaluation by the markets far exceeds the cost of public quotation, otherwise they would consider another route.

Even IPO or a sale to strategic buyers in the same industry, are now taking much longer than they once did. In 1999, it took less than two years for investors to cash out of an investment through an IPO, but in 2006 it took more than five years, according to Raphael Amit, Wharton professor of entrepreneurship and management.

When selling to other private equity firms, we must concern about the risk that private equity firms themselves are engaged in a sort of ponzi scheme in which buyout firms sell companies to one another at increasingly high prices that ultimately will crash. It caused me worried.

Then we backed to the craze of M&A. Before HCA was buyout by $33 billion of KKR in July 2006, the RJR Nabisco case was topped at the list at the cost of $31.4 billion since 1988. However, in January 2007, Blackstone launched a bid for a set of real estate assets〈Equity Office Properties Trust〉, valued at $38.3 billion. We are looking forward to seeing another break record in the very near future.

“ Everything is very peachy now. Last year was the best on record by size, and 2007 in all likelihood will be even better in terms of activity. Whether it will be a good year for investors is an open question.", Wharton finance professor Pavel Savor echoed.

References：
1. http://knowledge.wharton.upenn.edu/article.cfm?articleid=1647&CFID=3908579&CFTOKEN=62228347
2. http://knowledge.wharton.upenn.edu/article.cfm?articleid=1639
3. http://www.garp.com/risknews/newsfeed.asp?Category=6&MyFile=2007-01-25-14146.html
4. http://udn.com/NEWS/FINANCE/FIN5/3706089.shtml
5. http://udn.com/NEWS/FINANCE/FIN5/3706088.shtml
6. http://udn.com/NEWS/FINANCE/FIN5/3706086.shtml