Merger, acquisition boom likely to continue in 1998 Unique set of factors led to 40% increase in '97

January 04, 1998|By BLOOMBERG NEWS

NEW YORK -- Mergers and acquisitions soared 40 percent to more than $1.6 trillion in 1997, a record that was fueled by deregulation, low interest rates, booming stock markets and a need for companies to compete globally.

These trends are expected to continue in 1998, investment bankers and analysts said.

"I've never seen a set of factors come together like this," said Steven Wolitzer, head of mergers and acquisitions at Lehman Brothers Inc. "A healthy economy, a very strong stock market, low interest rates, a great financing market both here and abroad all growing at the same time for most of the year."

More than 22,000 transactions, spanning industries from banking telecommunications, constituted this global urge to combine.

Among the year's marquee mergers were WorldCom Inc.'s agreement to buy MCI Communications Inc. for $42 billion, the biggest acquisition ever; Union Bank of Switzerland's decision to combine with Swiss Bank Corp. in a $23 billion stock swap, creating the world's second largest bank; and U.S. electric company PacifiCorp's bid for Britain's Energy Group PLC for $9.7 billion -- a proposal that makes it one of the biggest-ever cross-border utility transactions.

In 1996, the value of all mergers and acquisitions was $1.14 trillion, according to Securities Data Corp. in Newark, N.J.

"Merger activity is created by growth and change, and as long as we have those two things, we will have mergers," said Steven Heller, head of mergers and acquisitions at Goldman, Sachs & Co., the No. 1 merger adviser, according to Securities Data.

Behind last year's record pace is steady economic growth in the United States and the United Kingdom, as well as a recovery on continental Europe.

"Every country is behind the U.S. in the forces that have caused the U.S. deals in the form of active shareholders, active boards, deregulation -- that kind of fundamental driving force just now starting to drive some foreign companies," said Rick Escherich, a managing director at J. P. Morgan & Co.

Pickup in Europe

Investment bankers predict that 1998 will see an increase in the number of transactions in continental Europe as the formation of a single economic body and the privatization of some of Europe's largest companies, such as Deutsche Telecom, force companies to seek more sleek, more efficient operating systems. Preparations for the single European currency in January 1999 will add to the pressure.

One of the first examples of that, bankers said, is the Union Bank of Switzerland-Swiss Bank agreement.

Cross-border transactions are expected to increase. Telecommunications agreements, in particular, should jump in 1998 as World Trade Organization restrictions are lifted on how much of a U.S. telephone company a non-U.S. company can own.

Pub Date: 1/04/98

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