M&A Award Season
January 25, 2010
Just about every magazine or website that covers M&A is going to have their own version of Deals of the Year. Second guessing how the other guys do it and the winners they pick is one of the ways we measure ourselves against our peers.
For instance, I think it's a bit of a cop-out to choose a winning deal in a private equity category based solely on a huge IRR. It's kind of like waiting until after the game is finished to pick a Super Bowl winner. Where's the fun in that?
I'm also not a big fan of the shortlist, which ultimately allows readers to choose the winner. It's perhaps the most democratic option, but it tends to reward the deals that generated the most headlines in the mainstream press and clearly favors bigger transactions.
Picking winners should be like filling out an NCAA tourney bracket. You're not quite sure how it's going to turn out, but you base your selections on different variables that hopefully translate into success long after anyone remembers the award. It might reflect the art of the deal in one instance and in another it can be a bet that's supposed change the face of a given industry. The best winners, as far as I'm concerned, are the ones that stray away from the obvious.
That also means there's a pretty good chance we're going miss from time to time too. I know AOL Time Warner was selected as the deal of the year by at least one publication, while David Stockman won pro of the year honors at another. We've managed to line up our own duds at Mergers & Acquisitions. Our 2007 winners included acquisitions of Midwest and RathGibson. I was also part of a committee that helped select Cerberus's acquisition of GMAC as a winner in an industry category the year before. I consider that to be one of the low points of my career, actually.
For the most part, though, the awards allow us to highlight the deals that deserve recognition. Even the Midwest investment, while it clearly wouldn't qualify as a homerun, established a model others would soon emulate to bridge buyer and seller valuation gaps. Maybe I'm just rationalizing away our misses, but I feel like the relevancy of a deal is as important as why it will be successful.
I mention all this as a reminder that we're accepting nominations for the 2009 Deals of the Year. We're not necessarily looking for the professionally bound books some of the investment banks will send out; a simple email documenting the key highlights is actually preferred. Everything is considered off the record until we pick the winners, at which point we'll follow up for a story. More information can be found here. The deadline for submissions is February 20.
In M&A, I think there's a natural distaste for antitrust laws. They can seem arbitrary and backwards a lot of the times. This was demonstrated again last week when Dean Foods had the Department of Justice rule against a deal that was closed last April. In basketball, when the officials miss a call, they'll just make up for it the next chance they get. In M&A, apparently, regulators have no problem backtracking if they think they overlooked a foul.
My first instinct is to side against the regulators. Watching football this weekend, though, I was bombarded by those Southwest Airlines commercials during nearly every break in the action -- the ones where the baggage operators question why other carriers charge for luggage.
The commercials aren't particularly compelling or funny, but they do make you appreciate the value of competition.
There's been a lot of commentary about the so-called Volcker Rule and what it means for private equity. Speaking hypothetically, because that's as far as I believe this will go, I'm not sure it would make a huge difference.
Here's the quote from President Obama that is causing all the unrest:
Banks will no longer be allowed to own, invest, or sponsor hedge funds, private equity funds, or proprietary trading operations for their own profit, unrelated to serving their customers. If financial firms want to trade for profit, that's something they're free to do. Indeed, doing so –- responsibly –- is a good thing for the markets and the economy. But these firms should not be allowed to run these hedge funds and private equity funds while running a bank backed by the American people.
As far as private equity is concerned, most of the larger banks have been fair weather sponsors in the first place. JPMorgan, Morgan Stanley, Citigroup, Deutsche Bank, they've all spun out captive sponsor groups during low points in the market. Then they launch new efforts when the markets bounce back. Meanwhile, the GPs find new backers and re-emerge as independent funds.
I realize the handwringing is partly a reaction to the general momentum in Washington moving against the asset class, which is already facing the prospects of higher taxes. With that said, I'm not sure the Volcker Rule, if it even becomes law, would have any kind of impact on the asset class at large.
It was interesting, though, that the Volcker Rule was unveiled the same week that the Supreme Court struck down corporate campaign-spending limits. So the banks, conceivably, can just redirect their prop desk kitty to back whichever candidate promises to overturn the legislation.
I realize there is no shortage of charities for people looking to support the recovery efforts in Haiti. I just thought I'd pass along another.
Rob Brown, a managing director at Lincoln International, is a board member of the US Fund for UNICEF's Midwest Region. A colleague of mine passed along an email he sent out last week, highlighting UNICEF's efforts to provide safe water, foods, temporary shelters and medical supplies to Haiti and also help care for children orphaned by the disaster. The link can be found at www.unicefusa.org/haitiquake or donations can be made over the phone by calling 1-800-FOR-KIDS.
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