M&A up on eve of tax hike
As a hike in the long-term capital gains tax looms, the third quarter became the busiest in two years for mergers and acquisitions, as investors looked to close deals ahead of the bell.
M&A value reached $1.75 trillion during the first nine months of 2010, an increase of 21 percent over last year according to Thomson Reuters Corp., which has a large office in Stamford. In the third quarter, deals backed by private equity companies fell just short of $150 billion, the highest level since the second quarter of 2008.
Many experts think mergers and acquisitions will add urgency in the fourth quarter, thanks to the tax rates on long-term capital gains swelling from a maximum 15 percent this year to 20 percent in 2011, and to nearly 24 percent in 2013.
Even for deals that do not get in under the capital gains tax wire, some experts see the M&A boom continuing into next year due to corporations flush with cash from the caution and cuts of the past few years; improved markets for credit and corporate bonds; and just plain pent-up demand after a recessionary hiatus.
“Despite some ongoing uncertainty about global underlying macroeconomic conditions, ”¦ confidence is returning in deal-making,” said Neil Masterson, global head of investment banking at Thomson Reuters in New York City, in a prepared statement.
The third quarter appeared to maintain the momentum of the first half, when some 1,700 deals nationally valued at $362 billion, with nearly 60 involving New England companies.
Connecticut”™s largest deal in the first half ”“ and New England”™s third largest as tracked by Mergermarket Ltd. ”“ was New Haven-based UIL Holdings Corp.”™s $1.3 billion acquisition of Southern Connecticut Gas Co., Connecticut Natural Gas Co., and the Berkshire Gas Co.
Several deals have since emerged to knock the UIL deal down the list of M&A behemoths involving Connecticut companies. In August, Buffalo, N.Y.-based First Niagara Financial Group Inc. reached a $1.5 billion deal for New Haven-based NewAlliance Bancshares Inc. In September, Stamford-based L-1 Identity Solutions Inc. drew a combined $1.9 billion from Safran SA and BAE Systems Inc., with the latter company taking L-1”™s government intelligence agency business. And in early October, Fairfield-based General Electric Co. took the covers off a $3 billion deal for Dresser Inc.
In the third quarter nationally, there were just over 100 mergers and acquisitions involving smaller, venture capital-backed companies, according to a second study by Thomson Reuters and the National Venture Capital Association. That compared to just under 70 deals in the third quarter of 2009.
Initial pubic offerings of stock were also up, with 14 in the third quarter that raised nearly $1.3 billion in funding, against just four a year ago that tallied under $600 million.
“The sustained strength of the acquisitions market has been the quiet, untold exit story of 2010,” said Mark Heesen, president of NVCA, in a prepared statement. “While those following the industry have been focused on the IPO market recovery, venture-backed companies have been selling at record levels, generating very respectable returns for investors. We expect this momentum to continue, and perhaps even accelerate after the November elections as large corporations put cash to work by making strategic purchases.”