NEW YORK – With price tags as high as $63 billion and $58 billion, the merger business is awakening from the bear-market hibernation that made corporate marriages a tough sell the last few years.
Some 2,052 U.S. merger and acquisition deals were announced in the first quarter, up slightly from 2,031 recorded in the last quarter of 2003, according to Thomson Financial. They were the first back-to-back quarters of 2,000-plus deals in nearly three years.
“It’s a sign of strengthening corporate earnings and economic growth,” said Richard Peterson, chief market strategist for Thomson Financial. “When M&A was down in 2001 and 2002, the economy was in recession. Now that the economy is in a period of growth, M&A activity is resurging.”
The total value of the transactions is also climbing, to $226.8 billion in the first quarter from $216.4 billion in the final three months of 2003. The last time the quarterly tally was bigger was in the fourth quarter of 2000, when announced deals added up to $346.3 billion.
So far this quarter, there have been 770 deals worth $72.4 billion, according to Peterson’s calculations.
Still, the mood in the merger business is relatively subdued as companies, facing greater scrutiny from shareholders and boards of directors, seek to avoid a repeat of the excesses of the 1990s, when the surging stock market led to exorbitant prices. The sky-is-the-limit attitude common in investment banking four years ago is no longer a given, analysts say.
“People have gotten used to idea of low-premium deals,” said Michael Plodwick, a banking analyst at Blaylock &Partners. “Back in the 1990s, you would have assumed you would have to offer a 30 to 40 percent premium” of a company’s stock price or value “to get the deal done.”
He noted that J.P. Morgan Chase &Co.’s planned acquisition of Bank One Corp. for $58 billion in stock gives Bank One shareholders roughly a 14 percent premium – conservative by ’90s standards.
Also, SunTrust Banks Inc.’s nearly $7 billion stock-and-cash acquisition of National Commerce Financial Corp. had a premium of roughly 5 percent to National Commerce shareholders, although that was on top of a 13 percent run-up in the stock before the deal was announced.
That leads some to question how long the cautiousness will last. “Yes, there’s more cautiousness to pull the trigger, because of the scandals at Enron and Tyco,” said Judy Radler Cohen, editor of Thomson Media’s Merger and Acquisitions Newsletter. “But some of that bad stuff is starting to fade in our collective memory, and companies haven’t lost their desire to grow through acquisitions.”
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