Merger Activity Sets Record Pace in 1994

STRATEGIC ACQUISITIONS

WHEN it comes to mergers and acquisitions (M&A), forget the ``Roaring Twenties'' and the ``greedy'' 1980s, when Republican presidents occupied the White House and allowed pell-mell merger activity to take place. 1994 has them beat hands down.

M&A activity in the United States is expected to reach around $340 billion this past year, according to Securities Data Company, a financial-services firm in Newark, N.J. That compares with the previous record of $336 billion in 1988.

Through Dec. 21, 1994, the actual dollar value for M&A transactions was $332 billion, says Craig Stillman, a representative of Securities Data Company. But that amount is expected to jump above $336 billion with several end-of-the-year mergers, including recently announced acquisitions and sales of assets by financial-services firm ITT Corporation in New York.

ITT is selling its commercial-finance unit to a North American unit of Deutsche Bank in a transaction valued at $2.3 billion; it is selling its Island Finance consumer-loan business to Norwest Corporation in Minneapolis for $1.4 billion; and the company plans to pay $1.7 billion to acquire casino and hotel operator Caesars World.

Some 7,300 M&A transactions occurred in 1994, compared with just under 4,000 in 1988. The big 1994 transactions include the takeover of defense firm Grumman Corporation by Northrop Corporation and the acquisition of financial-services company Dreyfus Corporation by Mellon Bank Corporation.

``The mergers and acquisitions of the 1990s are quite different from the deals of the mid-to-late 1980s,'' holds Perrin Long Jr., a Stamford, Conn.-based independent analyst/consultant who follows the securities industry. Many of the multibillion-dollar megadeals of the 1980s involved ``leveraged buyouts'' in which the main intent of the buyer was to leverage a profit by selling off underlying assets of the firm being acquired.

``Most of the current mergers involve strategic acquisitions,'' says Mr. Long, whereby firms acquire other firms, or divisions of other firms, that enable the buyer to gain greater market share, or to improve operations in production or sales programs.

There isn't any indication of a lessening of oversight by the antitrust division of the US Department of Justice, say attorneys specializing in mergers. In fact, oversight appears to have tightened from the 1980s.

``In one recent [merger transaction], we faced a legal challenge from a competing firm that led to some six weeks of inquiry from the Justice Department,'' says Susan Pravda, an attorney specializing in M&A activity. Still, the Justice Department eventually allowed the merger to move to completion once Washington had studied all relevant documents, says Ms. Pravda, a partner in the Boston office of Epstein, Becker & Green.

Pravda and her husband, attorney Gabor Garai, who is also with the firm, predict that merger activity should continue to be strong in 1995, as many companies seek strategic alliances.

Why was 1994 such a brisk year for mergers? According to Mr. Garai, part of the reason involves pent-up demand; the M&A market had slowed considerably in the early 1990s, when sellers sought unreasonably high purchase prices, and buyers found it difficult to obtain bank financing. Now, many acquisition specialists are flush with cash to buy companies, Garai says.

Can 1995 outpace 1994 in mergers and acquisitions activity? ``That, in part, depends on interest rates,'' Long says. If rates move much higher, some prospective buyers may find it difficult to win full bank financing, which would slow the merger market, he says.