The merger and acquisition market for publicly traded companies has become increasingly hostile over the past two years, according to a recent report by The Conference Board, a global organization that specializes in economic and business-related analysis and research. According to the report, hostile offers were 47 percent of U.S. mergers and acquisitions in the first two months of 2009, compared with 24 percent for all of 2008 and 7 percent in 2004.
“Today’s market conditions permit some companies to be ‘put in play’ more easily than before,” said Frederick Alexander, a partner at Morris, Nichols, Arsht & Tunnell LLP in Wilmington, Dela., and author of the report for The Conference Board.
Many companies are experiencing short-term liquidity issues, increased pressure to achieve cost savings, investment fatigue from investors and may have done away with structural takeover protections, which have contributed to the increasingly hostile buyout market, the report states.
The lower levels of consumer demand and an increase in “activist” shareholders demanding increased corporate earnings have also contributed to the more hostile marketplace, said Matteo Tonello, director of corporate governance with The Conference Board.
“In particular, these days we see that larger, traditionally more passive, institutional investors are more willing to tag along activists and pursue more immediate short-term returns to offset their unsatisfactory performance of the last two years,” Tonello said. “This is another important factor that has been driving the proxy battles of the 2009 season.”
In its latest report on M&A activity, Milwaukee-based Robert W. Baird & Co. notes the continuing decline of the buyout market. There were 492 announced deals during May, a 22.4 percent decline from May 2008. Dollar volume during May was $54 billion, a 57.6 percent decline from one year earlier.
However, the U.S. middle market is showing some signs of life. During May, there were 247 announced middle market deals, a 7.4 percent increase from May 2008. Mirroring the global decline, dollar volume was off 44 percent.
The lower end of the middle market was most improved in the Baird report. There were 212 deals with price tags less than $100 million during May 2009, compared to 168 during May 2008, a 26 percent increase.
“Although May was another difficult month for M&A in the U.S., year-over-year comparisons for deal activity were “less negative” than earlier in 2009,” the report states. “Recent reports of U.S. economic indicators and forecasts have contributed to the perception that the rate of economic contraction may have slowed. The Conference Board’s index of leading indicators, which is designed to predict economic trends six to nine months ahead, rose for the second straight month in May.”
