M&A Market Overview - Houlihan Lokey · M&A Litigation Over Time . 16 . M&A Deals Valued Over $100...

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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%)


10

Global M&A Volume: # 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%


11

U.S. M&A Volume: Transaction Value




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%


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.



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

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20

30

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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

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$14

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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


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

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M&A Market Overview - Houlihan Lokey · M&A Litigation Over Time . 16 . M&A Deals Valued Over $100...

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Transcript of M&A Market Overview - Houlihan Lokey · M&A Litigation Over Time . 16 . M&A Deals Valued Over $100...