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May 22, 2007The Power of a Strong M&A Market
As the strength of the current M&A market continues, many may be wondering what kind of impact will be felt on the market as a whole. While it is impossible to predict how the markets will react to specific M&A transactions, they do appear have a general impact. For example, the recent announcement that Bausch and Lomb will be taken private in the coming year means there is a wave of cash that will be looking for a new home. And while Bausch and Lomb may be the most recent announcement, according to Justin Lahart of the Wall Street Journal (Taking Stock: How Buyouts Alter the S&P, 5/17/07) there are a total of 12 companies in the S&P 500 index set to go private this year alone. Standard & Poor's analyst Howard Silverbratt estimates the total price tag for these 12 companies weighs in at an incredible $179 billion. So where does this cash go and how does it impact the market?
May 20, 2007Cheap At Twice The Price?
Microsoft Chief Financial Officer Chris Liddell acknowledged on a conference call Friday that like the DoubleClick scenario, Microsoft was also in a competitive bidding war for the aQuantive deal. This is one reason the company is paying a significantly higher price per share for the company than its current market value. With Google's recent purchase of DoubleClick, Yahoo buying Right Media, and WPP Group buying 24/7 Read Media, the real question is with whom were they in a competitive bidding war? Did Microsoft pay an 85% premium to avoid paying twice that much later from a private equity group? Considering that DoubleClick was taken private at $1.1 billion by a financial investor two years ago and returned to the market at $3.1 billion, an 85% premium seems to make sense. This also explains Microsoft's `urging' of regulators to review the Google/DoubleClick deal. And, by the way, Murdoch's bid for the Wall Street Journal looks cheap compared to Google and Microsoft.
May 18, 2007Creative Lending
The buyout frenzy continues- the latest example being Microsoft's acquisition of aQuantive Inc. for approximately $6 billion- an offer that was 29 times aQuantive's projected 2008 earnings (before special items). At least Microsoft was merely deploying a portion of its $28 billion cash balance held at the end of its fiscal year 2006. Even more baffling is the leverage multiples put up by some of the recent LBO's in the marketplace. Banks and private lenders have loaned a significant portion of the debt in these buyouts- often loaning debt up to 10 times EBITDA- a direct result of the surplus of available funds in the marketplace allowing for "creative" terms for the borrower. Relaxed loan restrictions are allowing companies to be more leveraged than ever before. Sound familiar?
May 18, 2007What is Liquidity?
There are several types of liquidity. In general phrasing, liquidity usually alludes to cash, the money or capital that fuels the wheels of commerce. In the financial world, definitions are more complex. There is market liquidity, the ability to buy and sell securities without greatly affecting the price. And there is funding liquidity, referring to the availability of credit and the ease with which institutions can borrow money. These definitions seem relatively straightforward, but do they really capture the concept of liquidity in the market? A recent article in The Deal entitled "Hooked On A Feeling" alludes to a more conceptual definition.
May 15, 2007Has blogging been compromised?
In today's Wall Street Journal - yes the old fashioned paper version - there is an interesting article about `Blogola'. Basically, the television studios are courting the so-called "mommy bloggers" to have them write about a new Warner Bros. sitcom and create a "buzz". They lavish them with a `day on the set', meet the cast, free stuff...in hopes that they will go back and spread the word through their blogs. It seems to me that this is further evidence that either blogging has arrived or the end is near. The more commercialized the blogging world becomes the less effective a resource it is for opening up discussions on topics, especially technical topics like valuation. How do you know that the blogger isn't being paid, selling advertisements or being asked to be a marketing tool for others? At Quist we write about topics that we believe are interesting to our clients and sometimes just to us. Recording our thoughts in this way helps our industry, reflects at times our understanding and most importantly is meant to assist our clients in staying on top of interesting issues. Will/is blogging failing due to "The New Adventures of Christine"?
May 08, 200767% - the magic number?
Speculation is running rampant on the Murdoch - Dow Jones deal. Will the family reject the offer? Can they reject the offer and not get sued? Why would anyone in their right mind offer such a premium?Interestingly enough, when we think about the buying power of the private equity world, the old adage "step up to the plate" frankly may be the only way to close this deal for Murdoch. A bidding war with a few powerful private equity firms with access to excessive debt appears to be pre-empted with a 67% premium. That's one way to win a bidding war. Is that really what it's going to take for a strategic buyer to guarantee a win in today's market?
May 04, 2007Control Premium or a Minority Discount
If you are a minority shareholder in Dow Jones & Co. you may want to give strong consideration to selling your shares soon, instead of waiting for the Murdock offer to close. Fortunately for minority shareholders, the stock is publicly traded and liquidity exists. They can sell at $55 per share today. Otherwise, if the company were privately held, the 66% control premium offered by News Corp would
possibly never be realized. The stock hasn't traded at this level since 2000 and fundamentals have steadily deteriorated since. The fact that the controlling shareholders are not willing to even consider a 66% control premium clearly indicates that maximizing shareholder return is not a priority. What's sad it that WSJ writers are painting the papers with how terrible the deal is. Sure it is, for them. Though they won't say it, they know if the deal goes through, they will be victims of change or possible pounding the pavement. The real issue here is shareholder prudence, not job security. If this deal falls through, it will be a long time before we see DJ in the 60's. Well the good new is, I guess we can now justify a minority discount of 50% . Or maybe it's not justified.....
