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Investment Bankers Say 'I Do' to Spring Mergers


The merger-and-acquisition biz has really never been better


"I always said that mega-mergers were for megalomaniacs." -- David Ogilvy

June is known as the month for brides, but marriages weren't the only mergers taking place last month, as a number of important unions were formed not in front of men and women of the cloth but, rather, at tables full of lawyers.

A virtual stampede of deals sprinted to the altar last month, and after last week's billion-dollar free-for-all, it seems the investment bankers were determined to close out the month with a bang. And that mission was certainly accomplished when Phelps Dodge (PD) played white knight -- paying upward of $40 billion in cash and stock to get Inco and Falconbridge, two of Canada's nickel mining giants. Meanwhile, Johnson & Johnson (JNJ) bid $16.6 billion for the likes of such brands as Listerine and Rolaids from Pfizer (PFE).

In the latter union, each company moved in opposite directions, either in favor of diversification (JNJ) or specialization (PFE). And let's not forget about the five-month battle that drew on and on and on, but eventually resulted in a $34 billion deal between Arcelor and Mittal Steel.

The merger-and-acquisition (M&A) biz has really never been better and according to Bloomberg, the second half of '06 could bring net income of more than $12 billion to the usual suspects: Goldman Sachs (GS), Merrill Lynch (MER), Morgan Stanley (MS), Lehman (LEH) and Bear Stearns (BSC). Because the fees these global investment houses charge tend to average 7.5% of the deal, you get an idea of just how large M&A as a business could be by year-end!

One Web site that I think does a bang-up job in following deal flows is The site shows that U.S. deals totaled $460 billion in 2004 and $618 billion in 2005, and it projects $648 billion by the end of 2006.

Although these numbers are mind-boggling, they do only tell part of the story. For instance the Mittal/Arcelor deal is not a U.S. deal, as Mittal is essentially an Indian company and Arcelor is based in Luxembourg.

When you throw the global numbers into the mix, things really get interesting. European deal flow had languished, but now threatens to overtake U.S. M&A activity. In 2004, "Eurodeals" totaled $314 billion, grew to $385 billion last year, but could overtake $725 billion this year! Add up the U.S. and European deals, multiply that by 7.5% and you'll get a staggering $103 billion in fees!

Sounds like it's a good time to be an investment banker, doesn't it?
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