Are Mega Deals Paving the Way for the Middle Market?

August 8, 2013 12:35 by Clayton Reeves in Capital Markets, M&A  //  Tags: , , ,   //   Comments (0)
Last week we wrote an article about a slew of deals announced in a 24 hour period.  We wondered if this may be a good sign for the rest of the market as a whole, in terms of increased deal volume in the future.  The Washington Post agrees with this sentiment, saying that the increase in mega mergers is a reflection of growing confidence in the economy.  As we said, the number of deals is down YoY compared to 2012, but the dollar amounts have increased.  Deals in dollar terms for 2013 have grown to $607 billion, compared to $486 billion during the same period in 2012.  This seemingly good news conflicts with some negative news around corporate margin widening slowing down, which would seemingly indicate at least a lull in growth for the future.  Of course, cheap corporate loans and the availability of dry powder for many companies and private equity firms means there are still plenty of willing buyers to be had, no matter what corporate margins are doing. In the end, deals create more deals.  The larger market players seem to be realizing that all this cash sitting around isn't earning them much of a return, and are acting towards putting it to good use.  The middle market might be the next area that we see deal volume pick up in. Click here to read the entire article.

CCCA Economic Dashboard: August 2nd, 2013

August 6, 2013 10:22 by Clayton Reeves in Capital Markets, Economy  //  Tags: , , , , ,   //   Comments (0)
Attached is the CCCA economic dashboard as of August 2nd, 2013. Click here to view a larger image.

U.S. Tax Code: Encouraging Foreign Mergers?

August 1, 2013 12:13 by Clayton Reeves in Capital Markets, M&A  //  Tags: , , , ,   //   Comments (0)
As we reported Monday, several major mergers have been announced that involve U.S. companies acquiring foreign companies and changing their taxable residence to foreign countries.  One example is Perrigo agreeing to buy the Irish drug company Elan and move their headquarters to Ireland, lowering their tax rate from 35% to 12.5%.  Additionally, Omnicom Group announced plans to merge with France's Publicis Groupe, lowering their tax rate to 25% from 35% in the process.  This will no doubt rustle the bee hive of negative sentiment around the way some companies creatively avoid taxes (I see you, Apple). So, this begs the question, will these transactions continue and what does it mean for U.S. tax code? CNBC has asked the same question in a recent article. Michael Schwartz, a Director of Accounting & Taxes at WeiserMazars, recently said, "There is a tax on U.S. firms bringing profits from overseas, but if you're incorporated abroad, [the United States] can't tax it if you've merged with another company." Ian Shane, a tax lawyer at Golenbock Eiseman Assor Bell & Peskoe had a similar perspective, saying, "Without tax reform in the U.S., I think you will see more of these types of deals.  You have to start from the premise that most tax laws are a decade behind how business is done. More companies are global and looking globally, and taxes are part of the bottom line." People can complain all they want about the fact that corporations are attempting to lower their tax burden, but the real crux of the matter lies in a tax code that is complex, dated and less attractive than other countries'.  The government needs to realize that they can attempt to restrict U.S. companies all they want, but innovation will continue so long as their is financial incentive to do so.  It will be interesting to see how the tax policy decision makers respond to this trend.  Click to read the article on CNBC here.

Corporate Margin Widening: Are We Slowing Down?

July 31, 2013 10:38 by Clayton Reeves in Capital Markets, Economy  //  Tags: , , , ,   //   Comments (0)
According to the Wall Street Journal, we may be approaching a period of slowing corporate growth.  The non-financial portion of the S&P 500 are expected to increase revenues by just 1.1% in the second quarter, year on year, according to Thomson Reuters.  Earnings are expected to decline 0.6% over that same period.  This would be a sign that margin widening may be at it's end.  After all, if there is no material growth to build on, cost cuts and efficiency gains can only take a company so far. Howard Silverblatt, senior index analyst for Standard & Poor's, agrees with that conclusion, saying "I don't know how many more people you can get rid of. You cannot continuously cut to get your way out." Four out of the last five quarters, corporate revenues have grown slower than the U.S. GDP.  This is not a figure that can continue indefinitely.  According to David Bianco, chief U.S. equity strategist at Deutsche Bank, "Earnings are going to run out of growth steam unless we get a pick up in business spending."  Meanwhile, companies are hesitant to spend too much money in the face of weak growth and uncertainty around political issues that impact corporate expenses such as health care reform.  It is a bit of a catch-22 that no one has felt confident enough to muscle their way out of, and with growth in margins slowing, it may not happen anytime in the immediate future. Click here to read the WSJ article.

Merger Monday: $50 Billion in Deals Announced in 24 Hour Period

July 29, 2013 17:17 by Clayton Reeves in Capital Markets, Financing, M&A  //  Tags: , , ,   //   Comments (0)
For those who slept through the last 24 day, boy has it been a busy time! As reported by USA Today, there were nearly ~$50 billion in deals announced over the past 24 hours - The fashion chain Saks was acquired by Canadian retail giant Hudson's Bay in a deal valued at $2.9 billion - U.S. drug maker Perrigo bought the biotech firm Elan in an $8.6 billion deal. - Allbritton TV stations were purchased by broadcaster Sinclair in deal valued at almost $1 billion. - Michael Baker has decided to sell itself for $392 million, $40.50 a share, to IMS, a privately held provider of professional, engineering and other services. This represents a 37% premium on Friday's closing price. - In a deal that would create the world's largest ad agency, firms Omnicom and Publicis plan to merge. This deal would be valued at $35 billion. - Republic Airways may also have found a buyer for Frontier Airlines (still in a preliminary, non-binding state) What does this mean for deal making in general? Many are pointing to these deals as a sign that equity values are not all that overpriced after all. As Richard Peterson of S&P Capital IQ states in the article, deal proceeds are up from last year. However, the proceeds figures had been skewed by some large transactions, while number of deals was down. If these large deals continue to happen, it may give confidence to the middle market to pursue more deals. Click here to read the entire article.

CCCA Economic Dashboard: July 26th, 2013

July 29, 2013 16:15 by Clayton Reeves in Capital Markets, Economy  //  Tags: , , , , ,   //   Comments (0)
Attached is the CCCA economic dashboard as of July 26th, 2013. Click here to view a larger image.

Capital Markets in 2025: What Will Change?

PricewaterhouseCoopers recently released a report on the state of capital markets in 2025.  The report expects a shift eastward, as would be expected by most market participants. This shift will increase the global horizon for many companies, and force them to look outside of their own country for growth opportunities, partners, acquisitions and even an exchange to list themselves on.  Almost three quarters of respondents said that emerging companies in particular will look to another emerging market for a listing.  Developed companies, the majority said, would prefer to list in another developed market. In terms of the might BRIC, only China has lived up to its billing so far.  80% of respondents thought that the Chinese market would be where the majority of listings occur by 2025.  For India and Brazil, 38% and 30% of respondents believe those markets will be important, respectively.  Russia is only thought to be an important market by about one in ten survey takers. This shift to emerging market exchanges will have wide implications for capital markets. Political, legal and regulatory uncertainty are all larger issues in a developing country.  Foreign investors will have to be opportunistic, but cautious when selecting investments in these new exchanges. Click here to read the report from PwC.

PwC's M&A Outlook Shows Optimism, Focus on Deal Execution

July 26, 2013 10:50 by Clayton Reeves in Capital Markets, Economy, M&A  //  Tags: , , ,   //   Comments (0)
PwC reports that the fundamentals behind M&A activity remain strong despite a slowdown in U.S. merger and acquisition (M&A) activity in the first half of 2013.  As we at CCCA have seen in the market, deal flow is constricted not by a lack of willing buyers, but a lack of targets with suitable fundamentals.  Acquirers are attempting to find companies with a history of growth, and many have struggled over the last few years to produce meaningful growth. Martyn Curragh, PwC's U.S. Deals Leader, stated in the report that “challenges in the M&A market are being driven by a lack of well-positioned assets for sale, not poor deal fundamentals. A shortage of quality assets and a growing list of willing acquirers dictate a need for confidence and greater preparation to execute, from deal strategy through integration. Greater competition is driving valuations and deal timelines, leaving some would-be acquirers to reflect on missed opportunities, and others with buyers’ remorse for failure to capture deal value.” So, focus shifts to realism around the probability of a deal being completed.  In our mind, this further enforces the need for experienced deal makers to discern the legitimacy of potential acquisitions. Click here to read the entire article.

Cedigaz: Global gas storage capacity to rise 48% by 2030

Cedigaz has reported that world wide gas storage is expected to increase from 377 billion cubic meters (bcm) at the beginning of 2013 to as much as 631 bcm by 2030.  New storage markets in Asia and the Middle East account for ~60% of this new capacity.  China is seen as a key driver of growth, as much of their storage infrastructure will need to be built from scratch. In more mature markets, such as the US and EU, growth in storage capacity will be limited. Instead the focus will be on new facilities that increase peak deliverability and back up renewable sources such as wind.  Both of these trends seem to favor cavern storage as opposed to man made.  At the beginning of 2013, there were 688 underground gas storage facilities in operation. More than two thirds of these are in North America: 414 in the US and 59 in Canada.  Europe boasts 144 storage locations (99 bcm) and 51 facilities (115.5 bcm) in the CIS. Asia has 18 sites (9.3 bcm), Argentina has one, and Iran has one. These figures are according to Cedigaz data.  Globally, there are 95 projects under construction for an additional 68 bcm of working capacity.  These will be completed by 2020-2025.  141 additional projects are identified at various stages of the planning process, with varying degrees of probability to complete construction. Click to read the full article here.

Healthcare IT the Most Active M&A Market Over First Half 2013

July 23, 2013 10:33 by Clayton Reeves in Capital Markets, Healthcare, M&A  //  Tags: , , , , ,   //   Comments (0)
Berkery Noyes Investment Bankers, a bank with a large research focus, has reported that Healthcare IT was the most active place to find M&A transactions in the first half of 2013. According to the report, Healthcare IT accounted for 63 percent of transactions and 40 percent of total mergers and acquisitions volume during that time frame.  Deal value was estimated at $8 billion.  One of the biggest dealmakers was Constellation Software, who purchased QuadraMed Corp., QMS Inc. and Club Solutions, just to name a few. As we move towards EMR/EHR adoption, the industry will most likely continue to see consolidation.  The technologies required to meet the meaningful use requirements set forth by the government can be complex and are coveted by large players.  Driving the point home, only 42 percent of hospitals report that they have met Meaningful Use Stage 1 requirements, while only 5 percent can boast Stage 2 compliance.  Look for more activity across the Healthcare sector in the coming years. Click to read the entire article here.

Past Posts