(This is not a legal transcript. Bloomberg LP cannot guarantee its accuracy.)
PAUL PARKER, GLOBAL HEAD OF M&A AT BARCLAYS CAPITAL, TALKS ABOUT MERGERS AND ACQUISITIONS ON BLOOMBERG TV
AUGUST 20, 2010
SPEAKERS: PAUL PARKER, GLOBAL HEAD OF M&A, BARCLAYS CAPITAL
MARGARET BRENNAN, REPORTER, BLOOMBERG NEWS
10:46
MARGARET BRENNAN, REPORTER, BLOOMBERG NEWS: So where will the next deals be made? Let's ask Paul Parker. He is the Global Head of M&A at Barclays Capital. He joins us now.
So, Paul, you are supposed to be on vacation. Why are companies now pulling the trigger on deploying that $3 trillion in cash, economy uncertain, markets still volatile?
PAUL PARKER, GLOBAL HEAD OF M&A, BARCLAYS CAPITAL: Well, look, absolutely. And the strategic imperatives don't take vacation and that is what we have seen over the past two years, world in transition, world in financial crisis. And as we have emerged companies still have strategic imperatives that are unresolved and they are making moves on them. Those that have capital and access to capital are making use of that and are acting.
BRENNAN: I spoke with the head of M&A over at Morgan Stanley back in the month of October and he said at that point, Robert Kindler, said it was too early to call that the trough of M&A back in October. Now we are in August. Is it too early to call this the beginning of the cycle?
PARKER: Well, it has really been going on for quite some time, frankly. The fact is it has accelerated in July and accelerated in August. July was 23 percent above the average of the full year. This year is actually, when you take out government interventions in the financial industry, is up 20 percent over last year as well.
So we are actually seeing a real pick up in this year, although when you compare it just dollar to dollar it looks like it is flat. What we see underneath it all is actually a lot of activity.
BRENNAN: Now, Korean National Oil made its $3 billion bid for Dana Petroleum hostile today. We have seen BHP go hostile with Potash. Do you expect more cross border deals and do you expect more of them to take this hostile tone?
PARKER: Well, what is really interesting when you mention cross border and think crossing continents, 35 percent of all transactions in the first half were crossing continents and then, of those 31 percent of all deals globally were in emerging markets. And what we saw is the emerging markets when they came out of the economic recession came out faster than the developed economies and also interacted with each other, as opposed to relying on the developed economies which were still suffering.
So what we have seen is a huge amount of cross border activity and emerging market activity. And the large strategic companies based around the world, whether in Europe or the US, are having to reevaluate their strategic positions and are really thinking, where should we be?
They are looking now much more, in a much more focused way to emerging markets. And the emerging markets are looking outward, China, India, Russia, Brazil, the Middle East, Africa. There is a lot of activity amongst those countries and it is going to continue.
BRENNAN: Does that lead us to looking at the commodity spaces in area with the hottest amount of deal flow right now? Where is the activity going to be?
PARKER: Well, as China and India, again, the countries I mentioned continue to industrialize at the pace that they are, the demand for natural resources is increasing. And you have seen that this year where the natural resource base has taken over 20 percent of the M&A market. It is the largest sector this year. Usually it is financial institutions -
BRENNAN: Right.
PARKER: - but this year it is natural resources. And that is expected to continue. But frankly it is just, if I can say that the activity however has been broad-based. It has been across all sectors.
BRENNAN: Yes. And in the tech sector that Intel/McAfee deal obviously really stunned people with the size of it, that 60 percent premium to the previous day's share price. Does that automatically raise the bar for prices in that tech space in terms of acquisitions?
PARKER: Look, it certainly is going to be an influential factor. But all of these are fact and circumstance driven. What we have seen are higher premium, the highest frankly since 2000. In the 2000 time period they were about 40 percent. They dropped over the decade and now approaching 40 percent and above again.
And part of that is the fact that valuations are still historically low when you look back at 20 and 10-year averages. And to move people from a status quo to seller you are having to put a bigger premium on the table, generally.
BRENNAN: Quickly, what is the significance of all cash deals here?
PARKER: Well, enormous levels of cash on the balance sheet, the highest since 1951. Interest rates are incredibly low and, therefore that cash is dilutive. It is not being used. Shareholders are starting to put some pressure on companies. Either use it or give it back. And strategically people know they have imperatives and they are putting that cash to work now. And there is also access at low rates to available capital in the capital markets.
Those two factors structurally are helping people use cash and make sure the transactions can be done on an absolute value basis. And it gives confidence to sellers that if they are selling now they are not going to be impaired from a valuation point of view. They can measure the cash and know what that value is going to be when the deal closes.
BRENNAN: All right. Paul Parker, thank you for your time this morning.
PARKER: Thank you.
BRENNAN: Global Head of M&A at Barclays.
10:51
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