According to Bloomberg’s database, there were 2,061 deals announced in the first quarter. The dollar volume of $269 billion was more than in any of the previous nine quarters.
In the second quarter so far, the average takeover premium has been unusually rich — 61 percent, the highest in 12 years.
We spent a lot of 2009 talking about how much cash the LBO firms had no choice but to put to work. We then beat the horse of cash on corporate balance sheets throughout 2010 until it was dead, brought back to life, and then dead again. Through the first few months of 2011 much of the discussion has been about strategic deals rather than “how will all that cash be put to work?”
One of the key reasons why I’ve been vocally more interested in the non-commodity areas of the market lately is that there is still a mountain of cash, earning nothing and ready to pounce. I see no abatement of dealflow happening anytime soon. Apple still has a $68 billion “problem” to contend with. Cisco, reporting tonight, probably needs to do a software deal this summer, Hewlett-Packard is also destined to make something happen on the software side with their new CEO having come from SAP. And Pharma! Don’t get me started on Pharma. There will be action.
With many solid companies trading at depressed multiples, we’re still in a very target-rich environment. The key is that we’re seeing more emphasis on strategic deals and less on financial ones. This is good.