It used to be that a company completing a global acquisition could choose from among a handful of investment banks, principally The Goldman Sachs Group, Merrill Lynch & Co., and Morgan Stanley Dean Witter & Co. Now, with worldwide mergers-and-acquisitions activity exploding, European banks becoming global powerhouses, and local lenders growing more formidable, the selection of banking partners for international deals is not so limited.
“The explosion in M&A activity has supported many investment banks in recent years,” says Thomas Poz, an analyst with Thomson Financial Bank Watch in New York. “Each of the three M&A giants did more than $1 trillion in business in 1999,” he says, adding that only 55 percent of that business was in the United States. In addition, says Fred Puorro, senior executive vice president with Thomson, as other large banks try to spread their influence by teaming up with local institutions, “those local lenders, especially in Europe, are also becoming part of the international financial family.”
The main benefit for companies, of course, will be the clout they gain from the increased competition. “Without changing their risk profile, banks will cater more to their customers,” says Poz. “There will be some give-and-take in terms of what investment banks will offer going forward.” And such give-and-take, adds Barry Sharp, CFO of AES Corp., an Arlington, Virginia-based global energy company, “will affect the sources of capital, the fees, and the development of ideas.”
Still, increased competition does not make selecting a global investment bank any easier. According to experts, the choice is dictated by several factors: the size of the deal, the bank’s knowledge of the target company, the availability of local expertise, and the solidity of the relationship between the global customer and its investment banker. In the future, says Puorro, the more complex needs of the global customer will force global banks to bundle their products, thus lowering fees. This development will also allow smaller institutions to participate in cross-border deals.
It’s the Volume
The sheer volume of global deal-making continues to surpass records and drive change. According to statistics compiled by Thomson Financial Securities Data, the volume of announced worldwide M&A activity in just the first six months of 2000 totaled $1.88 trillion on more than 19,347 transactions. This comes on the heels of a record-breaking $3.3 trillion in activity for all of 1999.
The United States is no longer the center of that activity. In fact, the number of domestic M&A deals in the first half of 2000 slipped by nearly 15 percent from the prior year. Meanwhile, the value of announced transactions in Japan reached a record high of $150 billion, compared with just under $18 billion the year before. In the rest of Asia, M&A activity jumped 58.6 percent in 1999, led by South Korea, where volume increased 94 percent. European M&A activity reached a record high of $468 billion in the fourth quarter of 1999. And while overall M&A activity in Latin America slowed in 1999, the dollar volume of deals announced by Latin American companies jumped by more than 360 percent, with new records set in Argentina and Chile.