m&a market overview - houlihan lokey · m&a litigation over time . 16 . m&a deals...
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MERGERS & ACQUISITIONS CAPITAL MARKETS FINANCIAL RESTRUCTURING FINANCIAL ADVISORY SERVICES
HL.com
Market Trends Jennifer Muller, Managing Director
March 2014
Through February 2014, the NASDAQ and NYSE indices were up 3% and flat, respectively, since the end of 2013, and up 36% and 18%, respectively, since the end of February 2013
Equity Market Performance Update Market Overview
1
Source: Capital IQ.
Equity Market Performance
0
2,000
4,000
6,000
8,000
10,000
12,000
Inde
x
NASDAQ NYSE
% Change % ChangeLOW HIGH 2/28/2013 12/31/2013 2/28/2014 from Feb '13 from FY '13
NASDAQ 1,269 4,319 3,160 4,177 4,308 36% 3%NYSE 4,226 10,426 8,869 10,400 10,426 18% 0%
Market Volatility Movements Market Overview
2
Market Volatility
At the end of February 2014, the VIX index registered at 14, down 4 percentage points from year-end 2012 and down 9.4 percentage points from year-end 2011. Lower market volatility in recent quarters has generally contributed to increased momentum in the equity capital markets, and along with it, a marked increase in IPO activity
Source: Capital IQ.
0
10
20
30
40
50
60
Vola
tilit
y In
dex
(VIX
)
Corporate and high-yield spreads have remained tight since Q4 ‘13, with spreads on A rated corporate credit hovering around zero despite the tapering of the U.S. Federal Reserve bond buyback program
Debt Market Performance Update Market Overview
3 Source: Bloomberg.
Corporate and High-Yield Spreads to 10-Year U.S. Treasury
Change % ChangeRATING LOW HIGH 2/28/2013 12/31/2013 2/28/2014 from Feb '13 from Feb '13A -7 512 56 -6 5 -51 -91.56%
BBB 96 680 147 97 102 -45 -30.62%
BB 199 1,114 307 204 208 -98 -32.10%
B 326 1,616 470 340 344 -126 -26.81%
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
Spr
ead
(bps
)
A BBB BB B
Favorable conditions supported leveraged loan issuance volume in Q4 ‘13 and into Q1 ‘14
Issuances decreased to $99.5 billion in the YTD ‘14 period, as compared to $121.7 billion in the corresponding YTD ‘13 period; however, new issuances are still on pace to near the highs of $604.8 billion reached in 2013
$165.6
$265.2 $295.4
$480.1
$535.2
$156.9
$76.6
$235.9
$375.4
$465.7
$604.8
$121.7 $99.5
$0.0
$100.0
$200.0
$300.0
$400.0
$500.0
$600.0
$700.0
($ in
bill
ions
)
Institutional Pro Rata
Highly Leveraged Loan Issuances Market Overview
4
Highly Leveraged Loan New Issuance Volume
Source: S&P LCD.
$151.6 $158.2
$106.1
$149.1 $147.9
$52.9
$180.7
$302.0
$245.6
$368.1
$398.5
$72.5 $49.4
$0.0
$50.0
$100.0
$150.0
$200.0
$250.0
$300.0
$350.0
$400.0
($ in
bill
ions
) High-Yield Bond Issuances Market Overview
5
U.S. High-Yield New Issuance Volume
Source: J.P. Morgan.
New issuance volumes slowed in 2014 after reaching record highs in 2013
New issuances priced in the YTD ‘14 period totaled $49.4 billion, compared to $72.5 billion in the YTD ‘13 period
2013 high-yield issuance volume totaled $398.5 billion, versus $368.1 billion in 2012 – making 2013 the highest year on record
Corporate Profits by Quarter
Corporate profits have more than doubled over the past 5 years, and cash build-up is around an all-time high. U.S. non-financial companies currently hold approximately $1.5 trillion of capital
Corporate Profit Movements Market Overview
6 Source: Federal Reserve.
$0
$300
$600
$900
$1,200
$1,500
$1,800
$2,100
$2,400
($ in
bill
ions
)
U.S. GDP Market Overview
7
U.S. GDP Growth
The U.S. economy remains in a recovery after exiting the recession in June 2009 U.S. GDP growth in Q4 ‘13 increased at an annual rate of 2.4%; expectations for 2014 are for 2.8%
growth1
The December 2013 National Association of Manufacturers Survey indicated that 78% of respondents were positive about business prospects, up from the low of 52% in December 2012, but still below a high of 89% in Q1 ‘12
1. Based on a survey of 51 economists conducted by the National Association for Business Economics November 8 – November 19, 2013.
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
QoQ
Gro
wth
Rat
e
Source: Bureau of Economic Analysis.
U.S. Unemployment Market Overview
8
Unemployment Rate
Source: Bureau of Labor Statistics.
The U.S. economy remains in a recovery after exiting the recession in June 2009 The unemployment rate, which was at 7.0% as of the end of November 2013, fell to 6.7% by February
2014. Total non-farm payroll employment increased by 175,000 in February 2014, with job gains in construction, manufacturing, wholesale trade, and mining
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
$2.75
$3.63
$4.26
$2.72
$1.95
$2.52 $2.53 $2.44 $2.35
$0.36 $0.49
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD'13
YTD'14
($ in
tri
llion
s)
CAGR 24% (36%)
(28%)
29%
(4%)1%
36%
(3%)
Domestic and Global Activity Market Overview
9
Notes: Regional breakdowns are by target and are based on total number of transactions. Includes minority equity deals, equity carve-outs, exchange offers, open market repurchases, and deals with undisclosed transaction values.
Global M&A Volume: Transaction Value
Source: Thomson Reuters, as of 2/28/14.
Global and domestic transaction values increased substantially in the year-to-date February 2014 period, as compared to the same period in 2013, despite a decrease in the number of transactions
35,478
40,839
46,73644,336
40,08042,805 42,177
39,80537,711
6,195 4,749
0
10,000
20,000
30,000
40,000
50,000
60,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD'13
YTD'14
CAGR 15%(5%)
(10%)7% (6%)(1%)
(23%)
(5%)
Domestic and Global Activity Market Overview
10
Global M&A Volume: # of Transactions
Notes: Regional breakdowns are by target and are based on total number of transactions. Includes minority equity deals, equity carve-outs, exchange offers, open market repurchases, and deals with undisclosed transaction values.
Source: Thomson Reuters, as of 2/28/14.
Global and domestic transaction values increased substantially in the year-to-date February 2014 period, as compared to the same period in 2013, despite a decrease in the number of transactions
$1.16
$1.51 $1.52
$0.93
$0.76 $0.82
$1.04
$0.82
$1.02
$0.19 $0.32
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
$1.60
$1.80
$2.00
2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD'13
YTD'14
($ in
tri
llion
s)
CAGR 15%
(39%)
(18%)8%
(22%)27%
69%
25%
Domestic and Global Activity Market Overview
11
U.S. M&A Volume: Transaction Value
Notes: Regional breakdowns are by target and are based on total number of transactions. Includes minority equity deals, equity carve-outs, exchange offers, open market repurchases, and deals with undisclosed transaction values.
Source: Thomson Reuters, as of 2/28/14.
Global and domestic transaction values increased substantially in the year-to-date February 2014 period, as compared to the same period in 2013, despite a decrease in the number of transactions
9,608
10,88311,526
9,558
7,870 8,282 8,594 8,759 9,057
1,511 1,291
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD'13
YTD'14
CAGR 10% (17%)
(18%)5%
2%4%
(15%)
3%
Domestic and Global Activity Market Overview
12
U.S. M&A Volume: # of Transactions
Source: Thomson Reuters, as of 2/28/14. Notes: Regional breakdowns are by target and are based on total number of transactions. Includes minority equity deals, equity carve-outs, exchange offers, open market repurchases, and deals with undisclosed transaction values.
Source: Thomson Reuters, as of 2/28/14.
Global and domestic transaction values increased substantially in the year-to-date February 2014 period, as compared to the same period in 2013, despite a decrease in the number of transactions
Alternative Transactions Market Overview
13
Buybacks and Dividends ($B)
Source: Morgan Stanley
Nearly $800 billion was returned to shareholders in 2013 via buybacks and dividends, while spinoff activity also shows an uptick relative to prior years
299 407 392
458
226
261 295
306
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
2010 2011 2012 2013
Buybacks Dividends
47
69
50
76
0
10
20
30
40
50
60
70
80
2010 2011 2012 2013
Spinoffs
Spin-off Volume
Source: Thompson Reuters
Initial Public Offering Issuance Summary Market Overview
14
Note: The above graphs include only IPOs of greater than $20 million.
Initial public offering volume increased in February amid increased stability in the market
$0
$2
$4
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$12
$14
0
5
10
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20
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30
35
Valu
e ($
in b
illio
ns)
Num
ber
of I
PO
s
Number of IPOs Value
IPO Volume
121 123 11913 32 82 76 90
154
71
552
646673
516
441
707 706732 658
94
110
673
769792
529473
789 782822 812
103
181
0
150
300
450
600
750
900
2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD '13 YTD '14
Num
ber
of E
xits
IPO M&A
Private Equity Divestitures Market Overview
15
Domestic Buyout-Backed Exit Volume
Source: Thomson Reuters, as of 2/28/14.
Private equity-backed IPOs in 2013 reached their highest total in recorded history, surpassing the prior record set in 2006. PE-backed IPOs have continued their momentum at record pace in 2014, with 71 PE-backed IPOs recorded through February, already surpassing the quarterly record of 69 recorded PE-backed IPOs in Q4 ‘13
M&A Litigation Over Time Market Overview
16
M&A Deals Valued Over $100 Million
Sources: Thomson Reuters’ SDC; SEC filings; dockets Note: The data include shareholder lawsuits related to acquisitions of U.S. public companies valued at or over $100 million.
Acquisition Announcement Year
2009 2010 2011 2012
Number of lawsuits filed
349 792 742 602
Percentage of deals litigated
86% 90% 93% 93%
Average number of lawsuits per deal
4.3 4.9 5.3 4.8
Average number of days between deal announcement and lawsuit filing
14 16 17 14
M&A Deals Valued Over $500 Million
53% 72%
92% 95% 96% 96%
2007 2008 2009 2010 2011 2012
Acquisition Announcement Year
% Subject to Litigation
Sources: Thomson Reuters’ SDC; SEC filings; dockets Note: The data include shareholder lawsuits related to acquisitions of U.S. public companies valued at or over $500 million.
Source: Cornerstone Research, “Shareholder Litigation Involving Mergers and Acquisitions – Review of 2012 M&A Litigation,” February 2013 Update.
M&A litigation frequency has increased in recent years and is almost a forgone conclusion in substantive transactions
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Disclaimer Market Overview
17