Withdrawn M&A at 5-year low as firms get cautious

NEW YORK (Reuters) - A tough M&A climate can actually make for more iron-clad takeover deals.

More bids announced this year are crossing the finish line, with withdrawn M&A and announced failed bids at their lowest level since 2005, according to Thomson Reuters and Freeman Consulting data.

Despite headline-grabbing withdrawals like Prudential Plc's (PRU.L) aborted $35.5 billion purchase of AIG's (AIG.N) Asian life unit and Simon Property Group's (SPG.N) spurned $6.5 billion bid for General Growth Properties (GGP.N), such deals made up only 8.3 percent of deal volume globally this year, according to the data through June 20 analyzed by Freeman.

That compares with 20.6 percent in the same period of 2008, the highest level for any first half since 2001. Even in the heyday of the deals market, in 2006, a relatively high 20.2 percent of bids were withdrawn or failed.

The low percentage of aborted bids is welcome news for investment bankers, who have lost just $609 million in M&A advisory fees so far this year due to aborted deals, the lowest total since at least 2001, the data shows.

In the first half of 2007, bankers put in as much as $4.1 billion worth of work on deals that went nowhere, in part due to the collapse of transactions like the $25 billion private equity buyout of student loan company Sallie Mae SLM.N.

"Part of it is simply a normalization relative to the aberration that we had in '07 and '08 during the financial crisis," said Gary Posternack, head of M&A for the Americas at Barclays Capital.

"Companies are more cognizant of what can go wrong and are more comprehensive in addressing those contingencies in the diligence period and in the negotiation of the contract itself," he said.

Boards and companies are getting more careful about deals as they watch market volatility amid the European debt crisis and remain nervous about economic recovery. In stock-for-stock deals, especially, swings in the equities markets make it harder to price deals.

"It is taking longer to get due diligence done and to get deals done," said James Stynes, global chairman of M&A at Deutsche Bank. "Financing has generally been strong, due diligence has been more in-depth, and boards have been tougher on agreeing to deals."

"We are seeing 'inevitable deals' getting done. They are not the sorts of deals that get withdrawn," he added.

Inevitable deals are transactions that have a strong strategic rational. Coca-Cola's (KO.N) purchase of the North American operations of bottler Coca-Cola Enterprises (CCE.N), after a similar move by rival PepsiCo (PEP.N) this year, is one such inevitable deal.

CONFIDENCE IN OUTCOMES

The data includes announced bids that lost out to rivals, which happened even for massive deals in the supercharged M&A environment before the financial crisis.

For instance, in early 2007 a group including Vornado Realty Trust (VNO.N) lost a $23 billion bid to take over Equity Office Properties, which went with an offer from Blackstone Group (BX.N) instead.

The data also includes only lost M&A advisory fees, and not the loss of other compensation that banks often earn in connection with major transactions.

The Prudential deal for American International Group Inc's American International Assurance (AIA) unit, for instance, would have seen banks make $740 million in underwriting fees from a proposed $21.7 billion rights offering on top of $112 million in M&A fees, the data shows.

AIG is weighing options for AIA, including an initial public offering, which would still lead to fees for banks.

It remains to be seen how long any of the lessons from the financial crisis will be retained by boards, companies and their advisers, but for now companies are thinking more before taking the leap.

"By the time the transaction is announced, the companies are therefore more comfortable and more confident about the outcome against a range of potential consequences," Posternack said.

(Reporting by Paritosh Bansal; editing by John Wallace)