Wall Street rides giant M&A wave as money chases deals

New York: American companies have huge cash piles and access to cheap debt so the dam has burst and Wall Street is seeing a revival in mergers and acquisitions. A string of buyouts within hours of each other on Thursday, for everything from ketchup to airlines to beer, shows deal-making is back after the last big wave of M&A some six years ago.

According to global deal tracking firm Dealogic, the $40 billion-worth of deals struck Thursday brings the total value of M&A transactions announced since January to nearly $160 billion, the fastest start to a year since 2005.

The flurry of high-profile acquisitions has Wall Street investment banks licking their chops. According to Thomson Reuters, billionaire investor Warren Buffett's proposed $23 billion Heinz deal should reap nearly $100 million for financial advisers. Heinz is spending up to $60 million on its advisers, Centerview Partners, Bank of America Merrill Lynch and Moelis & Company. Berkshire Hathaway and 3G Capital are spending some $37 million to pay Lazard, JPMorgan and Wells Fargo.

In addition to the Heinz deal, the highlights of Thursday's shopping spree were the $11 billion merger between AMR Corp and US Airways Group; drug wholesaler Cardinal Health's $2 billion purchase of rival AssuraMed and a reworked deal for beer giant Anheuser-Busch InBev NV over the sale of some brands to rival Constellation for $4.75 billion.

AFP

Warren Buffett in this file photo. AFP

Mergers and acquisitions took a hit after the financial Armageddon of 2008, as economic uncertainty and fear on corporate boards kept deal-making on the sidelines. But the economy now looks less troubled, companies have reservoirs of cash, and the red-hot financing markets are more than willing to provide companies with cheap debt to finance bids. In other words, not only is the US market rally on, but billions of dollars are just sitting on the sidelines looking for a deal.

Financial groups are again willing to bankroll huge deals because bankers are confident they can quickly sell the debt to yield-hungry investors.

"The more deals are announced, the greater the sense of corporate 'can do'. M&A activity is driven by primeval emotion - fear hinders, confidence emboldens," Philip Yates, a partner at Perella Weinberg, told the Financial Times.

Investors are also expecting more incoming deals via rapidly growing conglomerates in China, India, South Korea and Indonesia. Prior to the financial crisis, India, China and other emerging market buyers accounted for 15 percent of M&A deals announced globally up from 6 percent in 2003. They have been steadily buying into assets in Western markets.

Wall Street was mesmerised by the sheer speed with which former Tata Group chairman Ratan Tata led India's $100 billion conglomerate to buy up global brands such as Tetley Tea, Ritz Carlton Boston, Corus Steel, Eight O'Clock Coffee, Jaguar, and Land Rover, among others.

Sensing the direction of global M&A activity, ICICI Bank opened a branch in New York in 2008 to get a piece of the action.

"At least 23 percent of our revenues come from global operations. We expect this trend to remain strong. India is showing steady growth and Indian companies are leveraging this by embarking on mergers and acquisitions abroad. We want a piece of this cross-border M&A action," a senior banker at ICICI Bank, told Firstpost.