BIGCAPITAL's Blog

December 26, 2010

M&A tops $2.2 trillion in first yearly rise since 2007

M&A tops $2.2 trillion in first yearly rise since 2007

LONDON/HONG KONG (Reuters) – Mergers and acquisitions rose for the first year since 2007, potentially marking the start of a new, multiyear M&A cycle in which emerging economies account for a bigger share of global dealmaking.

Thomson Reuters data showed announced M&A grew nearly a fifth this year, to $2.25 trillion globally. The preliminary figures show emerging markets made up a record 17 percent of transactions, and energy was the busiest sector.

Next year could be busier still. Executives, bankers, big investors such as Schroders, and analysts at banks including Credit Suisse, Nomura, and Societe Generale are among those predicting a further rise.

Cheap debt, record cash piles, the need to outpace sluggish economic growth, and positive market reactions to many deals in 2010 should embolden companies to strike more deals, they say.

“We feel M&A volumes will improve next year, there’s certainly going to be more cross-border activity than ever, and Asia — again — will be a bigger part of the equation,” said Scott Matlock, chairman of international M&A at Morgan Stanley .

Deutsche Bank , the world’s fifth-busiest merger adviser, said next year could bring a bigger rise.

“The increase in M&A activity in 2011 should exceed that of 2010,” said Henrik Aslaksen, Deutsche’s global head of M&A.

“There’s more confidence, there’s ample liquidity, financing costs are attractive, and there’s an intense focus amongst corporates to identify growth opportunities,” he added. “The pipeline is very broad-based. It’s not just confined to one to two sectors.”

Senior executives on average expect $3 trillion of M&A next year, a recent Thomson Reuters/Freeman survey found.

GOLDMAN LEADS

That means 2011 could be the second of several years of rising deals — earlier this year Citi analysts said the world was “in the foothills” of a new M&A cycle. These cycles typically last years: the last peaks came in 2000 and 2007.

Bankers say a combination of cheap stocks, as measured by price-to-earnings ratios, and even cheaper debt means many deals would offer a big boost to earnings.

The optimism comes despite a slower fourth quarter and the worst spate of withdrawn deals since the height of the credit crisis: two collapsed BHP Billiton deals, in Canada and Australia, alone cut $100 billion from M&A volumes.

Jeffrey Kaplan, global head of M&A at Bank of America Merrill Lynch , said it was still “challenging to get deals done,” despite “good momentum going into 2011 for both corporate and private equity activity.”

With about a fortnight to go, Morgan Stanley is lagging archrival Goldman Sachs , after beating it to the No. 1 ranking last year for the first time in 13 years.

Goldman Sachs, under M&A head Gordon Dyal, has advised on $513.1 billion of deals to Morgan Stanley’s $499.5 billion.

‘LAND-GRAB’

Emerging markets deals hit a record $378 billion, while developed markets lagged. Global M&A increased 19 percent, while U.S. M&A rose 11 percent and activity in Europe climbed 5 percent.

Colin Banfield, Citigroup’s head of M&A for Asia-Pacific, said currency rates were aiding the region’s companies, which were growing “more ambitious” and contemplating bigger deals.

But aside from several major telecommunications tie-ups in the developing markets, and the odd banner deal such as Chinese carmaker Geely’s purchase of Volvo from Ford, many deals from newer markets were aimed at securing resources or technologies.

“We’re still in the early days of emerging markets M&A,” said Matlock at Morgan Stanley.

“When it gets really hot is when people decide they want to buy and build truly global multinational corporations, and we’re not there yet. It’s more focused on acquiring natural resources or on opportunistic deals.”

Energy and power was the year’s busiest sector, with a near-40 percent rise in announced deals to $482 billion, followed by the financial and basic materials sectors.

Asian companies including China’s Sinopec Corp and Thailand’s PTT Exploration and Production struck deals that ranged from buying stakes in oil fields to Korea National Oil Corp’s hostile takeover of Britain’s Dana Petroleum.

“Asian players, led by China, are making a land-grab for resources to fuel their economies for many years into the future,” said Jeremy Wilson, co-head of natural resources at JPMorgan .

September 15, 2010

Japan Intervenes To Weaken Yen And Warns Of More

JPY yen

Japan intervenes to weaken yen and warns of more

Japan sold yen in the market on Wednesday for the first time in six years and promised more to come in a bid to stop the currency’s relentless rise from hurting exporters and threatening a fragile economic recovery.

Fresh after victory in a party leadership contest, Japan’s Prime Minister Naoto Kan appeared to be stepping up efforts to wrench the country out of deflation by targeting yen strength, which has weighed on stock prices and corporate profits.

Estimates varied on how much Japan has spent in its first intervention in the foreign exchange market since 2003-2004, when its forked out 35 trillion yen ($409 billion).

Dealers suggested Wednesday’s intervention amounted to about 300-500 billion yen ($3.6-$6 billion), though some reports put it closer to 100 billion yen.

The U.S. dollar was boosted further after an official at Japan’s Ministry of Finance said intervention was not finished. It climbed about 3 percent on the day to more than 85.50 yen, having dropped to a 15-year low of 82.87 yen earlier.

Unlike in previous intervention, the Bank of Japan will not drain the money flowing into the economy as a result of the yen selling, sources familiar with the matter said.

That indicated the central bank plans to use the sold yen as a monetary tool to boost liquidity and support the economy.

Authorities that sell their own currencies to weaken them often issue bills to “sterilize” the funds and keep the excess money from becoming inflationary. In Japan’s case, it wants to promote inflation since the economy has been dogged with deflation for much of the past decade

The central bank may follow up with additional steps, such as buying more government debt, economists said.

“SYMPATHY”

Finance Minister Yoshihiko Noda, who will reportedly keep his post after a cabinet reshuffle, indicated Tokyo acted alone on the yen. He said he was in contact with authorities overseas and analysts expected Japan to be spared international criticism.

“Japan will be seen as a special case,” said Simon Flint, global head of foreign exchange research with Nomura in Singapore. “Obviously, its economy has been in significant trouble for a while, stocks have been depressed for some time, export performance relative to the Asian peer group has been very weak,” he said.

“To some degree there will be some sympathy in the rest of the world for Japan’s predicament.”

U.S. officials at the Federal Reserve and the Treasury declined immediate comment.

Analysts doubted whether Kan’s government was ready for a protracted battle with markets similar to the 15-month yen selling spree earlier this decade since that campaign prove ineffective at halting the yen’s strength for long.

WILL THE YEN STOP RISING?

Kan’s government has been trying to talk down the yen as it strengthened beyond 90 per dollar

“The government probably wanted to stamp out those views. But the question is: Will the yen stop rising from here? It’s not clear.”

USD/JPY’s recovery from around the session lows of 85.00 comes as a Japanese government official confirms the MOF/BOJ has intervened in European markets Wednesday

* Japan PM Kan: Intervened in fx because yen reached level where action was needed.

Japan’s Ministry of Finance said intervention was not finished. Japanese news agency Kyodo cited a ministry official saying Japan had intervened in European markets and will intervene in New York trading hours if need be.

www.Intermoney.org – Market Talk

Wednesday. September 15, 2010

UPDATE: 07:25 ET (11:25 GMT)

Create a free website or blog at WordPress.com.