DEALTALK-In M&A frenzy, deals that show CEO confidence is returning

Fri May 9, 2014 7:00am EDT
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By Nadia Damouni

NEW YORK May 9 (Reuters) - Over the past few years conditions have been ideal for dealmaking. Financing has been cheap, thanks to record low interest rates. Balance sheets have been strong, as companies hunkered down in the aftermath of the 2008-2009 financial crisis. The U.S. economy has come out of recession, but growth is still slow.

So every year, bankers have been predicting the return of corporate M&A in a big way. It has not really happened, though, because an essential ingredient in large, transformative transactions has been missing: CEO confidence. That's no longer a problem, say bankers and executives who see merger mania gripping corporate America again after a six-year hiatus.

Among the deals in the busiest year for M&A since 2007 are many that show management teams and boards are becoming more confident to take on risks that a large deal entails. That suggests the recent rash of dealmaking is likely more than a coincidence or a sector-specific phenomenon.

"Big deals require CEO and board confidence," said Gregg Lemkau, Goldman Sachs Group Inc's co-head of global M&A. "We have all been waiting for the past few years for that confidence to return."

"The dialogue we are having at the CEO level more than we have had in any time since pre-2007 is, 'What is your dream deal?', because the environment now is very conducive to think about doing your dream deal," Lemkau said.

Perhaps the clearest signs of returning confidence are deals such as Zimmer Holdings Inc's $13.35 billion purchase of rival Biomet Inc; Pfizer Inc's $106 billion bid for AstraZeneca Plc ; and General Electric Co's $16.9 billion bid for Alstom SA's energy business.

Sources familiar with the situation said Zimmer had long considered buying Biomet, attracted by the opportunity to increase scale and add to its research and development capabilities. The acquisition would make it the No. 2 seller of orthopedics products.   Continued...