Economic & Business Focus: Signs of Life in M&A

After three years of decline, merger-and-acquisition (M&A) activity showed signs of increasing at the close of 2003. A number of megadeals were announced, and transaction volume took a solid upturn. This consolidation was concentrated in a handful of industries where the long economic downturn has restructured competitive conditions. Compared with the free-wheeling M&A atmosphere of the boom years, today's deals are more complex, due diligence is more intense and pricing is more contentious.

M&A transactions slowed to a crawl with the 2001 downturn and remained flat in 2002 and the first half of 2003. "Now it feels like everyone's at the edge of the shore dipping their toes in the water," says Bryan D. Rosenberger, an M&A and corporate finance attorney in the Pittsburgh office of Eckert Seamans Cherin & Mellott LLC. "At the heart of this skittish environment are uncertainties regarding valuation, with buyers concerned by the many contingencies -- financial and otherwise -- which could undermine their pricing models, and sellers unwilling to discount the perceived value of their assets to account for such contingencies." Factors that can lead to pricing disputes include geopolitical risks; broad economic concerns; industry-specific issues, such as tariffs; and company-specific uncertainties, such as the viability of a new product line.

Still, some businesses are forging ahead with aggressive acquisition strategies. EMC Corp., the Hopkinton, Mass., information storage system provider with $6 billion in annual revenues, completed its acquisition of Legato Software last October and simultaneously announced that it would acquire Documentum in a $1.7 billion stock swap -- its 11th acquisition in three years.