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March 30, 2011 5:35 PM

On Heels of Big First Quarter, Experts See M&A Boom Continuing

Posted by Tom Huddleston Jr.

The M&A market kicked off the year with a bang, and experts predict that the growth experienced during 2011's robust first quarter will continue throughout the year.

Preliminary data from Thomson Reuters shows a 58 percent rise in deal volume in the first quarter, according to The New York Times, with the biggest deal during the three-month period announced just last week: AT&T's $39 billion acquisition of T-Mobile.

Meanwhile--according to a public relations firm's survey of 40 leading M&A bankers and attorneys released Tuesday--the dealmaking community sees the transactional hot streak continuing throughout 2011.

The Brunswick Group's fourth annual M&A Survey found 92 percent of respondents saying that they believe deal activity will continue to increase over the next three quarters. Only 78 percent of last year's respondents were similarly optimistic. 

What's behind the sunny outlook?  Survey respondents cited confidence in the market among company CEOs and boards, as well as an improving economy. [Download the survey here.]

Evidence of that confidence can be found in the fact that more was spent on corporate takeovers during the first quarter of 2011 than during any three-month period since the second quarter of 2008, just before the collapse of Lehman Brothers Holdings Inc., according to Bloomberg. Data compiled by Bloomberg shows that the median amount spent by acquirers on takeovers in the first quarter was more than nine times earnings prior to interest, taxes, depreciation, and amortization (EBITDA).

While impressive, the figure still pales to the spread achieved during the last M&A peak, during 2008, when acquiring companies paid 11.4 times EBITDA for takeover targets.  

Andrew Bednar, a founding partner at investment bank Perella Weinberg Partners LP in New York, told Bloomberg that the current spending spree is being driven, in part, by shareholders encouraging company executives to put stores of cash on hand to use.

"Equity markets will not reward corporate executives for managing cash," Bednar told Bloomberg. "They will be measured by how well they strategically invest cash."

The Brunswick Group's survey also shows that dealmakers expect a majority of 2011 deals (59 percent) to come from domestic transactions made by strategic buyers, with health care identified as the industry ripest for consolidation. 

Just over half of survey respondents named Asia-cased companies as those most likely to make inbound acquisitions in the U.S., followed by Europe and the Middle East. As for the latter region, The Wall Street Journal took a look at the stalled Middle Eastern market, pointing specifically to a recent move by United Arab Emirates telecommunications company Etisalat, which halted plans to acquire a $12 billion stake in Kuwaiti competitor Zain.

The WSJ reports that the decision by Etisalat, made due to a combination of divisions among Zain shareholders and uncertainty in the region, exemplifies the difficulty that dealmakers working in the region are likely to face for the foreseeable future.

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