Current Developments in M&A and PE – Take-Aways from MUPET 2010

I attended the Munich Private Equity Training 2010 (MUPET 2010). A lot of technical legal stuff. However, day one kicked off with a pretty good presentation by Ernst Fassbender (Head of Investment Banking Germany, Lazard) and quite an entertaining panel of some legal types (Charles Meek, Macfarlanes; Karl Hepp de Sevelinges, Gide Loyrette Nouel; Otto Haberstock, P+P). Here are my take-aways.

Lazard’s revenue through M&A advisory stands at USD 1,095 m looking at the last twelve months. As other big market players suffer from a lack of big M&A deals Lazard climbed up the ladder in the M&A advisory revenue ranking to No. 4 behind Goldman Sachs (1,830), JPMorgan Chase (1,693) and Morgan Stanley (1,404).

Despite all the optimism global M&A still stands at about a third of pre crisis levels. The volatility in the market has a strong effect on valuation. Hence, less cash deals and more stock for stock deals are announced.

Fassbender on PE in particular:

  • buyers less dependent on debt seek acquisitions (i.e. strategic investors)
  • with financing conditions easing up, PE investors are slowly returning to the market
  • plenty of PE money available – significant financing volumes very difficult
  • IPO exit route continues to be uncertain
  • take your opportunities quickly. Don’t wait for volatility and uncertainty to leave the market any time soon.

The panel on deal structures:

  • no syndication up to now but it is coming back
  • club deals do get done but only small tickets are taken by banks
  • PIK notes are dead.

… on the M&A market:

  • market has turned around: corporate buyers will lead large deals, level playing field (with respect to PE) in mid cap market.
  • due to volatility and uncertainty in the market deals have already been suspended to the third quarter of 2010 or 2011.

… on SPAs:

  • once financing is available, deals are done quickly
  • deals are well prepared these days
  • nevertheless commercial and legal DD is often repeated during negotiations
  • the “bad” deals of 2007 did not go down the drain because of bad DD. They went down because of bad financing.
  • warranty insurance is not that much of a rarity in secondary transactions in the UK. Policies are affordable (roughly 1 percent of warranty cover) and can be obtained within two to three weeks.
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