NEW YORK (Reuters) - State-controlled sovereign funds from the Middle East and Asia will quickly increase their corporate acquisition activity in the United States, emboldened by the weak dollar and hobbled credit markets, three veteran dealmakers said on Wednesday.
Lazard Ltd (LAZ.N: Quote, Profile, Research, Stock Buzz) Chairman and CEO Bruce Wasserstein, M&A attorney Martin Lipton and Apollo Management founder Leon Black shared their views on a panel at The Deal's M&A Outlook 2008 conference.
"One thing to understand is there's a huge amount of deferred demand that was overshadowed by the (leveraged buyout) movement," said Wasserstein, referring to deal activity coming to light now that the private equity buying spree has slowed dramatically.
In addition to pointing out the return of corporate, or strategic, buyers, the panel spoke of a coming wave of deals from so called sovereign funds, or investment funds sponsored by foreign governments. In addition to China's massive government investment fund, oil rich Middle East sovereign funds from places such as Qatar, Dubai and Abu Dhabi are top on the list of active foreign M&A seekers.
"When you look at how weak our currency is, and you look at the amount of strategic buyers out there, you're going to see a lot more purchases by sovereign states. You're going to see it just on the currency basis alone," Black said. "American assets are looking cheaper and cheaper."
The subprime mortgage meltdown crippled Western credit markets and have prevented banks from lending cheap money to private equity buyers, which has put many leveraged buyout firms on the sidelines for now.
That has reduced the competition faced by domestic and foreign strategic companies looking to do deals.
Black used the example of how Saudi Arabia's Saudi Basic Industries Corp 2010.SE (SABIC) won the auction for GE's sale of its plastics division. Black said Apollo had bought a similar, but smaller business from GE before, and the firm believed it was in a good position to win the GE Plastics auction.
Apollo not only lost the auction to SABIC, but was in third place behind a Russian oligarch, Black said.
"Sovereign funds are making significant investments in private equity funds and direct investments on their own. I think that will continue and grow," said Lipton, founding partner at Wachtell, Lipton, Rosen & Katz.
Abu Dhabi's government has purchased stakes in both Carlyle Group CYL.UL and Apollo.
"It's very clear that it's a very intelligent and very focused strategy they're following," Lipton said of the sovereign funds. "With oil fast approaching $100 a barrel, the amount of equity accumulating in these funds is enormous."
On the issue of regulation, Lipton said there would be less government interference.
"In the long run, regulation is not going to be that big a factor in merger activity. With the change in attitude of antitrust and with the globalization of business the old economic factors have changed."
© Thomson Reuters 2009. All rights reserved.
| India Investment | Nov 23 - 25, 2009 | Country Summits |
| Global Finance | Nov 16 - 19, 2009 | Financial Services / Exchanges |
| Health | Nov 09 - 12, 2009 | Health |
| Autos | Nov 02 - 4, 2009 | Autos |
| Middle East Investment | Oct 26 - 28, 2009 | Country Summits |
