Mergers: When Will Action Replace Talk?

Due diligence that usually would be three or four months now takes eight or nine months, an M&A lawyer says.

Will the growing buzz about M&A turn into some real deals? Each week the market appears to be gaining momentum. recently spoke with David Grinberg, a partner in the mergers and acquisitions practice at Manatt, Phelps & Phillips in Los Angeles, about the latest trends in M&A.

What are you seeing in terms of M&A volume?

The way I would describe M&A right now is that things are percolating, which is a lot more than I could have said six months ago, or back in the first quarter of 2009. People are talking about deals. People are getting excited about deals. There hasn’t been a ton of execution, but at least people are talking. But will it sustain itself; will it turn into a ton of transactions? Or will something happen to quiet it? It’s tough to say.

Are there certain industries that seem particularly active?

There have been a lot of big pharma mergers. The financial-institutions sector has been active, but only on one particular front, which is banks buying other banks that have been seized by the FDIC. There have been very few healthy bank M&A deals. If you buy from the FDIC, you get a loss-sharing agreement. Why go in and buy a bank directly if you can just wait until it’s taken over and buy it from the FDIC? So there’s action there, but a different type of action.

Other than that, I wouldn’t say there’s any particular industry that’s outpacing any of the other industries at the moment.

What are you seeing in terms of the mix of strategic vs. financial buyers? Are private-equity buyers getting back into the mix?

It’s mostly strategic buyers right now. If financial buyers are doing anything, they’re taking minority positions, whereby they can just use equity but don’t have to count on any leverage. When’s the last time you’ve seen a $10 billion deal done by a private-equity fund? It’s been a while. It will probably be a while.

What do you think are the most important things for CFOs to be thinking about in this environment, as either a potential buyer or a potential seller?

The CFO needs to worry about how the deal’s going to get financed. If you’re the buyer, you’ve got to figure out how you’re going to pay for the acquisition. And if you’re the CFO of the seller, you’ve got to think about whether a deal is something you should be pursuing with a particular seller. How likely is this buyer to be able to close the transaction? You don’t want to waste time negotiating an agreement only to find that the buyer doesn’t have the money or can’t finance it. It’s really all about, “Is this a deal that can get done from a financial point of view?”


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