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Good businesses will get good prices.

Major investment banking firms face 1992 with restrained optimism on merger and acquisition activity. In a recent roundtable discussion with Mergers & Acquisitions magazine (an affiliate publication of Directors & Boards), a group of investment bankers prognosticated on the M&A market for this year. Here is a summary overview of their projections.

After two tough years, the engineers of large deals believe that the worst of the M&A slump is behind them, but that a vibrant, broad-based market is still not at hand. Yet, dealmaking should be active in selected areas in which M&A is the most viable strategic alternative.

The IPO Option. Pricing equilibrium in the M&A market will remain elusive, as long as potential sellers can opt for public offerings to fetch more generous values. "In certain growth industries, such as consumer products, pharmaceuticals, and biotechnology, in which public market pricing is very high, an IPO may generate better pricing than the M&A market," says James W. Meyer, senior vice president of Lehman Brothers. In many cases, he adds, the IPO market "offers the best return and the best strategy to maximize long-term shareholder value."

A Halting Comeback for M&A. IPOs may work for growth and glamour companies, but more mundane commodity and industrial companies must sell through M&A channels. They will sell but, as Gordon A. Rich, First Boston Corp.'s director of mergers and acquisitions, says, "This is not the time you can promise most sellers that you can get a great price." On a more hopeful note, John A. Golden, partner at Goldman, Sachs & Co., counsels that "Good businesses will still get good prices, notwithstanding what the general climate may be."

The Need to Go Global. Cross-border acquisition activity should pick up in selected industries that are fragmented and where global presence is required. Food, pharmaceuticals, and financial services should remain among the M&A bellwethers. Jeffrey Rosen, managing director of Wasserstein, Perella & Co., cites the acquisition of Nicholas Laboratories by F. Hoffmann-La Roche. "It was sold at a price that many people regarded as a significant premium to the real value," he says. "But the price was acceptable to Roche to access an established European vehicle for its own portfolio of over-the-counter pharmaceuticals in Europe." He adds that the conventional wisdom will still hold: "Strategic assets continue to attract strategic buyers, and, depending on need, the prices can be impressive."

Choosey Japanese Buyers. Japanese companies are expected to remain cautious on acquisitions in the U.S. Smaller deals and minority interests will be among the preferred initiatives.

Eastern Europe Targeted. Acquisitions are expected to increase as Eastern European economies head toward full privatization.

Financing Innovations. With bank financing tight, dealmakers are testing some new channels, such as investment bank self-syndication and sale of senior notes. Financing problems have led to a rise in stock-swap deals.
 Completed Acquisitions in the Health Care
 Industry -- 1990 vs. 1991
Industry Number of Value
Segment Transactions ($mil)
 1991 1990 1991 1990
Pharmaceuticals 43 53 $525.0 $7,965.6
Medical Devices 48 52 302.0 822.7
Health Services 125 76 1,438.4 2,810.5
Total 216 181 2,265.4 11,598.7
Note: Transactions involve a U.S. operation and have a minimum value of $5 milli
Source: M&A Data Base, ADP/MLR
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Title Annotation:Mergers & Acquisitions
Publication:Directors & Boards
Article Type:Panel Discussion
Date:Jan 1, 1992
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