Merger Spree Reaches New Intensity A Record 7,800 Transactions Were Announced Last Year

When H. Wayne Huizenga, owner of the Miami Dolphins and Florida Marlins, announced last January he was adding National Car Rental to the stable of companies he owns, he set in motion a second consecutive record breaking year for the nation’s investment bankers.

Bets already are being taken for a three-peat.

By the time 1997 ended, nearly 7,800 transactions valued at more than $653 billion had been announced, according to Mergerstat, a monthly publication that has tracked the nation’s mergers and acquisition business for more than 20 years.

That wave of mergers obliterated the record set only 12 months earlier, when more than 5,800 deals valued at more than $466 billion were announced.

“The volume is staggering,” said Scott Adelson, managing director of Houlihan Lokey Howard and Zukin, a Los Angeles-based investment banking and consulting firm that publishes Mergerstat.

But despite the current turmoil in the Asian markets, Adelson and other merger specialists believe 1998 could be another banner year. As if to set the tone, two rival drug makers revealed last week that they are considering merging. If it happens, the deal between SmithKline Beecham PLC and American Home Products Corp. would be the biggest corporate merger in history.

“Unless there is some type of catastrophic event, it’s going to be more of the same,” said Adelson. “There is a fundamental belief that consolidation of industries is one of the best ways to create value.”

Not only were there more deals worth more money in 1997 than ever before, the average deal was worth millions more: $284 million compared to $173 million in 1996, according to the data compiled by Mergerstat.

In fact, 120 megadeals - those worth more than a billion dollars - accounted for more than half of the total U.S. deals. Those 120 deals totaled $369.5 billion; of those, one deal, the $35.3 billion acquisition of MCI Communications Corp. by WorldCom Inc., accounted for nearly 10 percent of the value.

“These deals are being driven by the need to make strategic acquisitions, to increase competitiveness, to enter new markets or obtain new products and to obtain scarce human resources,” said Robert Wujtowicz, a partner in the accounting firm Ernst & Young, which announced in October its own $18.3 billion merger with KPMG Peat Marwick.

He noted that 1997 was the first time some companies sought merger partners in part because, in order to continue their own growth in the face of the tight labor market, they needed to add additional employees trained in certain fields.

With $205.7 billion in transactions, financial services dominated the merger news. The nation’s biggest banks strove to become bigger and offer more diverse services, a trend that will continue this year.

“We have far too many banks per capita,” said Adelson. According to the American Bankers Association there are more than 8,000 banks nationwide. That’s down from more than 14,000 only 10 years ago.

But the trend involves more than consolidation. Freed by a Federal Reserve Board ruling that allows them to expand beyond their traditional role of handling savings and checking accounts and lending money, banks are turning to some of the financial services industry’s biggest deal makers as their next meal.

Morgan Stanley Group Inc., Salomon Inc., Alex. Brown & Sons, Dillon Read & Co., Robertson Stephens & Co., Oppenheimer Group Inc., Furman Selz Inc., Montgomery Securities and Wheat First Butcher Singer all became bank acquisition targets during the year.

“Just like other industries, financial companies are trying to create operational synergies while competing in a one-stop competitive environment,” said Adelson.

Indeed, seven of the 10 largest deals last year involved the acquisition of financial service companies. Experts said this year will be no different as banks continue their efforts to expand their franchises. In the Chicago area, First Chicago NBD Corp., parent company of the First National Bank of Chicago, now is frequently being mentioned as a takeover target.

But beyond the financial services sector, both Adelson and Wujtowicz said the volume of all mergers will continue this year.

“I don’t see any slowdown in volume, because there still will be a strategic need to acquire,” said Wujtowicz.