The M&A party is over, the music has ended and dealmakers have stopped dancing.
The recent tightening of credit by lenders has derailed the number of buyouts by private equity firms, which have largely been responsible for the M&A orgy. Clearly, the proof is in the numbers. In August, there were about $222 billion worth of announced deals around the globe, according to market research firm Dealogic, the lowest monthly total since July 2005. The August deal number is a big cut from the $695 billion figure struck in April and the $579 billion in July. Last week alone, there were only two deals announced worth more than $1 billion in the U.S., but in the last week of July there were nine such deals announced in the U.S.
The credit crunch also has lowered the valuation of some acquisitions yet to close, meaning the announced initial sales price is no indicator that the bid will stay at that price. Lately, buyers have renegotiated their initial offers because of tighter credit market conditions. Take, for example, Bain Capital LLC, Carlyle Group and Clayton, Dubilier & Rice Inc. offer for Home Depot Inc.'s wholesale division. The big-box hardware supply store on Aug. 27 accepted $1.8 billion, or 17%, less for its unit than the original offer in June. The valuation was cut from $10.3 billion to $8.8 billion, and Home Depot agreed to retain a 12.5% stake.
With lenders continuing to tighten their belt, look for M&A to continue to slow and bankruptcy filings to increase. —Gerald Magpily
See Wall Street Journal article
See Sept. 5 TheDeal.com article
Tags: deals, m&a, mergers
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