Mergers and acquisitions in the Chicago area have increased for the first time in two years, according to a study released Wednesday, though the size of the transactions are still small potatoes compared with the heyday of big deals in the late 1980s.
There were 119 announcements of mergers or acquisitions in the first six months of 1993, up 25 percent from the 95 deals made in the first six months of 1992, which saw the area’s fewest deals in 15 years.
“There seems to be less uncertainty this year because at least we have a new president in place,” said George A. Parry, whose financial consulting firm, George A. Parry & Associates of River Forest, tracks corporate marriages and divorces in the metropolitan area. Last year’s numbers were tamped down by several causes, including the recession and the election year, Parry said.
“This year, that uncertainty was no longer there, but there’s still some remaining over the economy and taxation.”
Other major contributing factors to this year’s upturn were record low interest rates and increased overseas expansion, particularly in European markets.
Major transactions involving Chicago-area firms included the acquisition of HMO America Inc. by United Healthcare Corp. for $370 million; PNC Bank Group’s purchase of the mortgage banking group of Sears, Roebuck and Co. for $370 million; the acquisition of part of First Chicago Corp.’s real estate loan portfolio by GE Capital for $500 million; and the sale of two units of Kemper Corp. to Lumbermans Mutual Casualty Co. for $637 million.
But those numbers pale in comparison with the $12.9 billion acquisition of Kraft by Philip Morris Cos. in 1988 or the $3.8 billion combination of Baxter Travenol Laboratories Inc. with American Hospital Supply Corp. in 1985. A more recent example was the 1990 sale of Beatrice Co. by Kohlberg Kravis Roberts & Co. for $1.34 billion to ConAgra Inc.
“There’s a lack of the blockbuster, multibillion-dollar deal. Either we’ve run out of companies or it’s become more difficult to acquire them because of increased resistance to the hostile takeover and banks’ unwillingness to finance them,” Parry said.
An indication that local companies are continuing to refocus on core businesses was the high number of divestures-51-representing 43 percent of the deals. In the same period last year, there were 33 divestures, or 35 percent of the transactions.
Foreign acquisitions picked up sharply as well. There were 25 overseas deals, almost double the 13 foreign transactions in the same period last year. Sara Lee Corp. led the pack with six foreign acquisitions. Among the other area companies involved in foreign deals were R.R. Donnelley & Sons Co., Helen Curtis Industries Inc. and CBI Industries Inc.
One troubling trend, Parry said, was the relatively lower percentage of area companies that purchased part or all of out-of-town businesses. In the 95 transactions involving out-of-town firms, locals were the buyers in 57 percent of the deals. That figure is somewhat lower than the long-term average of 60 percent, but down significantly from the record 73 percent last year.
