CORRECTED-Buffett's Heinz deal points to rebounding U.S. M&A business

Thu Feb 14, 2013 5:02pm EST

(Corrects spelling of last name to Aquila, in 12th paragraph)

By Michael Erman

NEW YORK Feb 14 (Reuters) - U.S. merger and acquisitions activity has surged in the first two months of the year, as strong equity markets and cheap debt financing give chief executives renewed confidence to pursue large takeovers that they had shunned in past years.

An announcement Thursday that Warren Buffett's Berkshire Hathaway would buy ketchup maker H.J. Heinz Co was perhaps one of the most attention grabbing of $158.5 billion of deals in the United States so far in 2013.

That is more than double the activity in the same period last year and accounting for 57 percent of global deal volumes, according to Thomson Reuters Deals Intelligence.

The strong showing in U.S. dealmaking contributed to a 16.5 percent rise in worldwide M&A volumes to $276.0 billion compared to the same period a year ago. That marks the highest level since the 2007 dealmaking heyday when global deal volumes totaled $407.5 billion.

Thursday alone saw a bonanza of mega-deals; the $23 billion takeover of Heinz by Berkshire Hathaway and Brazilian private equity firm 3G Capital, the merger of American Airlines and US Airways Group, and the revised $20 billion takeover of Mexican brewer Grupo Modelo by Anheuser-Busch InBev.

Jim Woolery, co-head of North American mergers and acquisitions at JPMorgan, said that all the ingredients are in place for deal activity to pick up. Financing is cheap and available, companies have cash on their balance sheets and equities markets have improved.

"What we've lacked has really been conviction and confidence at the c-suite level. With the election and the fiscal cliff, there were headwinds that were pushing against folks acting decisively," Woolery said. "Now, we've taken some of the variables off the table."

JPMorgan has been the top M&A adviser so far in 2013. In the past few weeks, the company has worked on nearly all of the big announced deals including Heinz, Michael Dell and private equity firm Silver Lake's $24.4 billion buyout offer for Dell Inc , Comcast Corp 's $16.7 billion bid to buy the rest of NBC Universal from General Electric and the $15.8 billion takeover of British cable group Virgin Media by U.S. billionaire John Malone's Liberty Group.

Goldman Sachs Group and Bank of America Merrill Lynch currently hold the second and third spots in the worldwide league tables in 2013. Boutique investment bank Centerview Partners is fourth.

Global transaction volumes only rose slightly last year as uncertainty about the euro zone, the U.S. presidential election and the fiscal deficit gave many CEOs and boards cold feet.

But with some of the major political events in the rear view mirror, executives are showing more interest in considering larger deals, say bankers and lawyers.

"There wasn't a lot of confidence last year. Today business confidence is much higher, companies have a lot of cash as a consequence of the cost cutting they did starting in '07 and '08," said Frank Aquila, co-head of Sullivan & Cromwell's general practice group.

"Now they need growth. In an environment where there is not a lot of organic growth, they're looking towards M&A."

And dealmakers believe the momentum will keep up through 2013.

"It feels very much like an inflection point in the M&A market," said John Huwiler, Global Head of M&A at Jefferies Group. "Four blockbuster transactions announced in a short period of time ...it's quite a mark of confidence that we think is going to translate into an acceleration in the pace of activity."

"It's the fundamental truth of the market - it's been true for years. Deals beget more deals," said JPMorgan's Woolery. (Additional reporting by Jessica Toonkel and Olivia Oran, Editing by Soyoung Kim and Alden Bentley)

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