Party like it's 1988

20 April 2009

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It should come as little surprise that the recent uptick in M&A activity is largely on the back of distressed parents selling off non-core, albeit sound, assets. This was, after all, what many had been betting on, and why so many private equity houses with cash were hoarding it (and those without trying to amass it)

The last month alone has even seen parents helping finance the purchase of their erstwhile units, so eager are they to get them off their balance sheets: Barclays has offered to partially fund CVC's purchase of iShares; US-based Fifth Third backed Advent International's purchase of its payment processing unit; and eBay has reportedly offered to part finance the sale of Skype back to its founders, perhaps with the backing of four buyout houses. That it would take three former Titans (KKR, Warburg Pincus, Providence) and a relative newcomer (Bono's Elevation) to fund the deal is a further sign of changed times; two years ago just one would have funded the entire equity ticket for the deal, reported to be around $2bn.

What may surprise many is how soon the uptick is occurring - most, after all, had hoped activity in the autumn at a push. But indeed a recent report has revealed that bankruptcy-related M&A is at its highest level since August 2004. Could this mean some pickings for private equity on the not-too-distant horizon?

In fact, history would show us that the last downturn's stress-induced M&A was also fast and furious. For three months after the October 1987 stock market crash nothing happened - much like the period following Lehman's collapse - but from January 1988 things quickly picked up, and the first half of that year saw more takeover attempts than in all of 1985 (which then had been a stellar year).

So perhaps current headlines, including Goldman's earnings for Q1 and possible repaying of its TARP loan, as well as US President Obama's recent speech indicating that the US is turning a corner - are signs of things to come, and not merely blips in an acutely depressed market. I'll drink to that.

Yours sincerely,

Kimberly Romaine

Editor-in-chief, unquote"

Tel: +44 20 7004 7526

kimberly.romaine@incisivemedia.com.