The Wall Street Journal-20080130-Deal Journal - Breaking Insight From WSJ-com
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Deal Journal / Breaking Insight From WSJ.com
Full Text (620 words)Deals in January:
Anybody Out There?
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U.S. Isn't Totally to Blame
As Acquisitions Scorecard Proves
Worst Since October of 2004
The new year isn't providing deal makers with much relief.
There was only $176.6 billion of acquisitions announced in the first 29 days of January, according to Dealogic. That is down almost 20% from the slowest month -- September -- of 2007, down 37% from a year earlier and down 51% from December. In fact, it was the lowest monthly total since October 2004.
That flies in the face of predictions that 2008 deal volume would slip perhaps only 20% from the record year that was 2007. If you were to annualize the January total, 2008 would resemble 2004, and that would be a 58% drop from 2007.
The January decline can't be laid solely at the feet of the U.S. Since the credit crunch began to take its toll on M&A last summer, the U.S. has been hardest hit for deal making, while Europe and Asia fared better.
U.S. deal volume was $57.9 billion through Jan. 29, above the lows of August and September. Interestingly, U.S. deal volume wasn't propped up by foreign buyers. The value of acquisitions in the U.S. by foreign buyers this month reached $7.9 billion, compared to $61.4 billion in December and $11.2 billion last January.
On the private-equity front, global buyout volume is on pace for the slowest month since July 2003 (though with two days left in January, there is an outside chance it will surpass February 2005's $11.7 billion). Private-equity shops have struck $10.2 billion of deals globally this month, $6.8 billion of which were in the U.S.
-- Stephen Grocer
Making an Example
Of Blackstone, Again?
Has the high profile of Blackstone Group and its chief, Stephen Schwarzman, set the firm up for a game of regulatory chicken? People familiar with the private-equity giant think so.
These people say the Office of the Comptroller of the Currency wanted Blackstone to commit to making capital infusions to Alliance Data's two banks in times of trouble without any time or size limit, and at the regulator's discretion. The OCC asked Blackstone to remain as the primary capital backer of those banks, even if the firm sold all or part of the businesses. One of these people called it the "roach motel provision" because "you can check in, but you can't check out."
They pointed to other, similar deals -- from the days before the credit crunch that began in June -- in which the OCC didn't impose similar conditions: such as TPG's and Hellman & Friedman's 2005 acquisition of broker-dealer Private Ledger, the acquisition of GMAC Commercial Holding -- now Capmark -- in 2006 by Kohlberg Kravis Roberts, Goldman Sachs Group and Five Mile Capital Partners. Perhaps most galling to Blackstone, the OCC didn't impose the same rules on another private-equity firm, Welsh Carson Anderson & Stowe, when it created Alliance Data.
Is Blackstone being singled out? The OCC says no. In a statement, the agency said: "It is the OCC's statutory responsibility to assess any proposed change in control of a national bank to assure that the change in control does not jeopardize the financial stability of the bank or adversely affect the Federal Deposit Insurance Fund. In certain cases, the OCC may require assurances regarding capital and liquidity support for the bank from controlling companies to insure that these standards will be satisfied. The OCC's approach to the Blackstone transaction was not unique in this regard."
Of course, given subprime troubles, it wouldn't be surprising if regulators are putting tighter conditions on financial-services acquisitions. But is the private equity industry prepared for conditions as tight as that?
-- Heidi Moore
