M|amp|A transactions break record during first quarter

The message from U.S. dealmakers is clear: Bigger is better, and the first quarter of 2000 was just about as big as it gets. Dealmakers reported a record-breaking 2,459 transactions, surpassing the 2,391-transaction record of the third quarter of 1999, and $493.2 billion in total deal value.

Driving these numbers were two leading factors: the continued rapid consolidation of high-tech sectors such as prepackaged software, information retrieval services, IT consulting, and e-mail management and the continued consolidation of top international businesses.

Mega-deal activity in high gear

Mega-deal activity was the highlight in the first quarter of 2000. Dealmakers reported 69 mega-deal transactions deals with price tags of $1 billion or more worth a whopping $397.2 billion. This surpassed the fourth quarter of 1999, which recorded 41 mega-deals worth $349.5 billion, and the first quarter of 1999, which recorded 45 mega-deals worth $141.6 billion.

A number of compelling stories surfaced among the top announcements of the first quarter of 2000. America Online Inc. made history with the biggest acquisition ever when it agreed to buy Time-Warner Inc. for $166 billion. VeriSign made the largest e-commerce agreement in history with its $17.8 billion agreement to buy Network Solutions.

Ernst & Young, one of the Big 6 U.S. accounting and consulting firms, bid farewell to its consulting business in an $11.2 billion deal with French firm Cap Gemini. Times Mirror Co. shocked the newspaper world with its sale to the Tribune Co. in a $5.6 billion agreement. Two Finnish paper companies, UPM-Kymmene Oyj and Stora Enso Oyj, invaded the United States in a bid to become top global players in the paper industry, striking two deals worth a combined $10.4 billion.

Seagate Technology became part of a steadily growing trend in M&A when it agreed to go private in a $16.7 billion agreement with Veritas Software Corp. and an investor group led by Silver Lake Partners, Seagate Management and Texas Pacific Group. (The deal was the second-largest going-private deal in history.)

There have been 20 companies taken private so far this year in deals worth $19.4 billion. Last year, there were 74 public companies taken private in deals worth $14.8 billion.

Most active industries

The top five industries in the first quarter by volume were the computer software, supplies and services; miscellaneous services; communications; brokerage, investments and management consulting; and wholesale and distribution industries.

The computer software, supplies and services industry reported 697 transactions during the period, up by 56 percent over the fourth quarter of 1999 and by 118 percent in the first quarter of last year. The industry disclosed a deal value on 231 of the transactions worth $92.6 billion, more than double the dollar value of both the fourth and first quarters of last year.

Activity in the miscellaneous services industry stayed relatively flat compared to the fourth quarter of 1999 with 231 transactions, but dropped by 10 percent compared to the first quarter of last year. Overall deal value in the industry rose 32 percent to $8.3 billion from the fourth quarter of 1999 and increased by 43 percent over the first quarter of 1999.

Volume in the communications industry rose 4 percent compared to the fourth quarter of 1999 and by 59 percent compared to the first quarter of last year, but overall deal value dropped 88 percent to $17.8 billion from fourth quarter 1999 and by 78 percent from first quarter 1999.

Deals for brokerage, investment and management consulting companies grew by 45 percent over the fourth quarter of 1999 and by 71 percent over the first quarter of 1999. Industry deal value jumped to $20.8 billion from $5.3 billion in fourth quarter 1999 and $4 billion in first quarter 1999. Activity in the wholesale and distribution industry fell by 12 percent to 100 deals from the fourth quarter of 1999 and 11 percent from the first quarter of 1999. Industry deal value rose to $8 billion, more than 3 1/2 times the total of the fourth quarter of 1999.

Average deal size rises

The average deal size in the first quarter of 2000 grew to $591.3 million, up from $558 million in the fourth quarter of 1999 and from $399.6 million in the first quarter of 1999.

The median deal size increased to $52.8 million from $45 million in the fourth quarter of 1999 and from $32.9 million in the first quarter of 1999.

The average premium of a deal in the first quarter of 2000 increased to 49.3 percent from 48.1 percent in the fourth quarter of 1999 and from 44.4 percent in the first quarter of 1999.

(The preceding article was provided by Mergerstat LP, a firm that tracks mergers and acquisitions involving U.S. business entities excluding the exchange of business assets, private placements, spin-offs and open-market transactions.)