E-commerce Competition Intensifies: Megadeal between Google and eBay on the Horizon?

As reported by the San Jose Mercury News, Carl Icahn is at it again. One of the world's most active investors, Icahn is pressuring eBay to spin off its PayPal segment in a move that is intended to unlock value for current eBay shareholders. However, one analyst from Baird Equity Research seems to have a different idea, which he revealed in an investment note released on Monday. Baird analyst Colin Sebastian recently wrote that a merger could be "a possible 'best of both worlds' opportunity" that would accomplish Icahn's goals while allowing Google to shore up a struggling division. He continued to explain that, "we believe acquiring eBay/PayPal would be one way for Google to secure quickly a strong leadership position in commerce and payments, and likewise, could represent a better strategic option than alternatives proposed for eBay," The deal would certainly create a giant in the e-commerce space, with eBay potentially adding $75 billion to Google's already mammoth $400+ billion capitalization. Read the entire article here.

2013 PE Deal Flow Review

February 13, 2014 11:32 by Clayton Reeves in   //  Tags: , , , , , , ,   //   Comments (0)
McGladrey recently released reports on PE activity in four sectors: business products & services, healthcare, information technology and consumer products. Business Products & Services: The first half of 2013 represented one of the worst periods of the last several years for B2B deal making. The first two quarters suffered a hangover effect from the rush to close deals at the end of 2012, and took the first six months of 2013 to recover. While Q3 and Q4 were better, they couldn't make up for the lack of performance over the first half of the year. This is surprising, as 2012 had the most PE exits in B2B in the last ten years. Many expected those exits to spur additional investments, but instead PE mostly sat on their cash. 2014 is expected to be better. Healthcare: Once a rock in an uncertain sea of M&A, not even healthcare could escape unscathed from 2013. Deal flow in the healthcare industry contracted for the first time in 2013 since 2009. Although the number of deals consummated was still historically high at 280, capital invested declined for the second straight year. Industry experts blame a variety of factors on the hesitation to invest in healthcare, foremost amongst those reasons being the affordable care act. Once there is more certainty around the evolving regulations, investors are expected to have more confidence in evaluating acquisitions. Information Technology: PE deal makers broke a streak of three straight years of increased deal making in IT, but capital invested soared 55% to $86.5 billion. IT companies continue to perform well as technology continues to make its presence known in professional and personal applications. McGladrey expects 2014 to be slightly better. Consumer Products: M&A in the B2C industry followed general industry trends, declining 14 percent from 2012 to 2013. Capital invested was the highest it has been since 2008, but consumer products companies continue to struggle as confidence continues to improve gradually. Q4 was difficult for consumer products companies, as holiday sales increased revenues at the expense of margins. McGladrey believes the pipeline is stocked with deals compared to the same time last year, since Q4 2013 did not see the same rush to close as Q4 2012 did. Access the full reports here.

Merge or Die: Are Mergers the New Growth Catalyst in a Sluggish Economy?

As 2014 begins to take shape, many in the M&A industry are worried about a repeat of 2013, when conditions seemed ripe for deal making but those deals failed to execute.  Other than several mega deals, 2013 was largely disappointing. For context, world wide M&A was $4.27 trillion in 2007 on more than 40,000 transactions. Only a year later, 2008, we saw that amount fall to $1.9 trillion. Reuters estimates that private equity firms ended 2013 with $1.074 trillion in dry powder. Bain Capital has postulated that there is $300 trillion in capital laying dormant around the world that could be used for M&A. Capital is also still cheap, as interest rates remain relatively low. So, with all of these things pointing towards more deals being executed, when will it begin? In a recent article from Institutional Investor, Robert Teitelman postulates that there could be a "new normal" in terms of how companies grow. In a low growth global environment, he says, acquisitions are one of the only ways to increase the size of your business. US GDP was a healthy 3.2% in Q4 2013 after being 4.1% in Q3, but other parts of the world are not showing that same growth. Most expected M&A activity to be back to pre-crisis levels by now, considering the health of the overall stock market and US economy. However, it has only rebounded to mid 2000s levels. Chris Ruggeri is a principal in Deloitte’s financial advisory unit and leading manager of the firm’s M&A practice. She summed up the lack of deals by saying, “We’ve been sort of stuck. Confidence fuels growth. And growth fuels M&A. To get growth, you need confidence. It’s not there.”  Let's hope the confidence returns and deal makers start pulling the trigger, or 2014 could be a repeat of 2013.

KPMG: Deal Activity in 2014 Expected to Improve

KPMG recently released the results of a survey given to over 1,000 deal makers with regards to 2014 M&A prospects. In short, deal activity is expected to improve in 2014. However, 2013 was also heralded by many as the year that would see M&A really take off and it didn't quite come to fruition.  Several mega-deals notwithstanding, 2013 fell short of expectations. So what makes 2014 different?   According to the survey, deal makers felt relatively positive about the environment and 63% of respondents said they planned to be acquirers in 2014. Most of this optimism was the result of large cash reserves, favorable/available credit terms, improving equity markets and improved overall confidence. However, as one investment banker put it, deals should most likely increase "because next year can't possibly be as bad as this year." This is where the questions really start. Many of the economic drivers present at the beginning of 2014 were also present in 2013. Private equity has piles of dry powder, corporate balance sheets are stocked with cash and money is cheap to borrow. However, all of these factors were also present in 2013. Instead of an increase in overall activity, we saw an increase in PE exits. So why would activity suddenly increase? According to the results below, most respondents expected targets to "become available." From our experience in the market, there are plenty of motivated buyers, but quality companies wanting to sell have been scarce. If this situation changes in 2014, the activity will most likely be very high. Some companies that we've spoken to have been anxious to eclipse pre-recession levels before having a liquidity event. Others are optimistic about the market in general, and want to leverage their growth opportunities utilizing cheap borrowed capital. The latter of those reasons won't change in 2014, but if some companies reach their targeted EBITDA numbers, sales could increase.   Click here to read the full report from KPMG. Hopefully, the conclusions drawn from their survey will come to fruition and 2014 will be a "solid" year.

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