The rise and recent fall of the latest wave of M&A has been fueled largely by private equity’s excessive dependence on debt. Corporate buyers are now back in the driver’s seat and armed with the cash and profitability to do deals.

❏ As we showed in our . 2007 M&A report, The Brave New World of M&A: How to Create Value from Mergers and Acquisitions, PE firms spearheaded the surge in deals between 2004 and 2007, accounting for a mounting share of transactions by value, aided by the low cost of debt and relatively weak covenants. The credit crunch has taken the wind out of PE firms' sails-- and has sent a few shivers through corporate boardrooms.

❏ Although deal values rose by 19.3 percent between 2006 and 2007, they declined by 17.8 percent in the second half of 2007 compared with the first half of the year. However, a closer analysis of the deals reveals that this drop is less a sign of loss of confidence in M&A than a shift in power back to corporate buyers.

❏ Transaction volumes, for example, remained relatively high and stable throughout the year (apart from a temporary dip in August 2007 in response to the subprime crisis in the United States), indicating that the market remains healthy.and that there is a trend toward smaller deals.

❏ More significantly, private equity'ss share of total deal value plunged from 27 percent to 13 percent between the first and second halves of 2007, while corporations' share of deal value increased from 73 percent to 87 percent.

❏ Moreover, corporate buyers have the cash and profitability to continue to do deals. The average cash surplus of the S&P 500, for example, is 56 percent higher than it was in 2000, when M&A values and volumes reached record heights. The average profitability of these companies, measured by earnings per share, is also more than twice as high as it was in 2000.

❏ Sovereign wealth funds (SWFs) could also step up their M&A activity. And private equity, with its $300 billion war chest of unallocated funds, could enjoy a resurgence. ...

(From Executive Summary of the Report)

About the Authors

Jeff Gell is a partner and managing director in the Chicago office of The Boston Consulting Group and global sector coleader of M&A. Jens

Kengelbach is a principal in the firm’s Munich office and a member of the European corporate-finance task force. Alexander Roos is a partner and managing director in BCG’s Berlin office and global sector coleader of M&A.

Acknowledgments:

This report is the product of the Corporate Development practice of The Boston Consulting Group. The authors would like to acknowledge the contributions of their colleagues:

Gerry Hansell, senior partner and managing director in the firm’s Chicago office and leader of the Corporate Development practice in the Americas

Jérôme Hervé, partner and managing director in BCG’s Paris office and leader of the Corporate Development practice in Europe

Heino Meerkatt, senior partner and managing director in the firm’s Munich office and global privateequity sector leader

Daniel Stelter, senior partner and managing director in BCG’s Berlin office and global leader of the Corporate Development practice

The authors would also like to thank Philipp Jostarndt and Kerstin Hobelsberger for their scientific and research support.

Finally, the authors would like to acknowledge Keith Conlon for helping to write this report, and Katherine Andrews, Gary Callahan, Elyse Friedman, and Kim Friedman for their contributions to the editing, design, and production of this report.

For Further Contact

BCG’s Corporate Development practice is a global network of experts helping clients design, implement, and maintain superior strategies for long-term value creation. The practice works in close cooperation with the firm’s industry experts and employs a variety of state-of-the-art methodologies in portfolio management, value management, mergers and acquisitions, and postmerger integration.

Download The Return of the Strategist: Creating Value with M&A in Downturns

PDF format, 1.3MB, 34Pages.

Jeff Gell, Jens Kengelbach, Alexander Roos
May 2008

Contents
Note to the Reader 4
Preface 6
Executive Summary 7
The Return of the Corporate Buyer 9
Power Is Shifting from Private-Equity Firms to Corporate Buyers 9
Private Equity Is Down but Not Out 11
Are Sovereign Wealth Funds the New Private Equity? 14
Is Now a Good Time to Do a Deal? 14
The Advantages of Doing Deals in Downturns 16
Harnessing the Power of Downturn M&A 16
Picking Winners in Downturns 16
The Benefits of Divestitures for Buyers and Sellers 21
Key Success Factors for Buyers 21
Key Success Factors for Sellers 24
Appendix: Methodology 27
For Further Reading 30

Visit The Boston Consulting Group (BCG) Website

The Boston Consulting Group (BCG) is a global management consulting fi rm and the world’s leading advisor on business strategy. We partner with clients in all sectors and regions to identify their highest-value opportunities, address their most critical challenges, and transform their businesses. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization.

This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 66 offi ces in 38 countries.

Comments (0)

Show/Hide comments

Name

Email

Website

Title

Comment

smaller | bigger

Add Comment