The number of acquisitions completed or announced nationwide last year was the lowest since 1980, while the aggregate dollar value of such deals was the least since 1984, according to a survey by a Chicago firm.
Tax-law changes and turmoil in the post-crash financial markets slowed overall takeover activity, according to W.T. Grimm & Co., a merger and acquisition consulting firm. However, billion-dollar-plus ”megadeals”
maintained their upward momentum, and the takeover value of U.S. firms bought by foreigners was at a record high in 1987.
A total of 2,052 deals were completed or announced last year, the firm said, down 38 percent from the 3,336 tallied in 1986 and the lowest since 1,889 in 1980.
James J. Kelly, Grimm president, said last year`s decline had been anticipated. He noted that many deals were rushed to completion in late 1986 so buyers and sellers could avoid the consequences of tax-law changes that went into effect Jan. 1, 1987.
The drop in activity was most pronounced in 1987`s fourth quarter, when dealmaking suffered from the aftershocks of the Oct. 19 market crash. In that period, the number of deals fell 49 percent, to 462 from a heady 902 in the fourth period of 1986.
Grimm said the aggregate value of 1987 deals in which the price was disclosed was $165.8 billion, down 4 percent from $173.1 billion in 1986 and off 8 percent from the record $179.8 billion in 1985.
The 1987 level was the lowest in the survey since the $122.2 billion recorded in 1984.
However, the number of billion-dollar-plus takeovers last year increased by 26 percent, to 34 from 27 in 1986.
Because of the greater number of megadeals, the average dollar value of mergers and acquisitions was $167.5 billion in 1987, up 42 percent from 1986`s average of $117.9 billion.
Grimm said the largest transaction last year was British Petroleum Co.`s $7.8 billion purchase of the 45 percent stake in Standard Oil Co. that the British firm didn`t already own. That deal also was the largest acquisition of a U.S. company by a foreign firm.
Prodded by the declining value of the dollar, foreign buyers forked over an aggregate $38.2 billion for U.S. companies last year, toppling the record of $24.5 billion set in 1986.
Of those 1987 purchases in which the price was disclosed, the acquired company sold for an average of 22.9 times its earnings, up from a multiple of 22.2 percent in 1986. Grimm said buyers of publicly traded companies paid an average 37.6 percent premium over market price, down from 38.2 percent in 1986.
Among the megadeals completed or announced in 1987 were several involving Chicago firms: Amoco Corp.`s proposed $4.2 billion purchase of Dome Petroleum Ltd.; the $3.8 billion leveraged buyout of Borg-Warner Corp.; and JMB Realty Corp.`s $1.9 billion purchase of Cadillac Fairview Corp.
Grimm said Amoco`s purchase of Dome would be the largest acquisition of a foreign company by a U.S. firm. Primarily because of that deal, the dollar value paid by U.S. companies for foreign targets rose to a record $10.7 billion in 1987, more than doubling the record of $5.2 billion set in 1986.
Last month, another local merger and acquisition consulting firm said the number of completed or pending deals involving Chicago area companies fell by 24 percent in 1987, to 416 from 549 in 1986.
George A. Parry, head of the consulting firm that bears his name, predicted a further drop this year, primarily because of continued financing uncertainty in nervous post-crash markets.
He also noted that many firms have responded to the Oct. 19 crash by buying back some of their own stock, using funds that might otherwise be available for takeovers.
