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Deals

M&A rises 18 percent in Q1 as Asia, energy deals grow

LONDON/NEW YORK (Reuters) - Mergers and acquisitions jumped to $520.4 billion in the first quarter, accompanied by a big shift in global dealmaking as emerging market and energy-focused takeovers made up a growing slice of activity.

Flags fly outside of the Goldman Sachs headquarters building in the financial district of New York January 21, 2010. REUTERS/Jessica Rinaldi

Thomson Reuters data released on Friday showed announced M&A rose 18 percent worldwide from the first quarter of 2009, when dealmaking was depressed by the credit crunch that followed the financial crisis. Compared with the last quarter of 2009, however, M&A fell 16 percent.

Senior dealmakers said they expected M&A would continue to recover, after hitting a five-year low last year. But they warned that better financing conditions needed to be balanced against ongoing caution about the economic outlook and earnings.

“Most people we speak to would say: we are past the worst, but the outlook is still very uncertain and for many this feels like it’s going to be a long, hard climb,” said Simon Dingemans, managing director, European M&A at Goldman Sachs

GS.N.

Goldman, unseated for the first time in 13 years as the busiest M&A bank by Morgan Stanley MS.N last year, staked an early claim to regaining its title, placing first for the quarter for global, U.S., and European M&A.

Dingemans said boards remained “very cautious” but dialogue with clients pointed to a more sustained pick-up in deals in the second half of the year.

EMERGING BILLIONAIRES

British insurer Prudential Plc's PRU.L $35 billion bid for AIG's AIG.N Asian life insurance business, the quarter's biggest deal, helped power a near-doubling of deals targeting that continent, which hit $110.6 billion in total.

For only the second quarter on record, Asian M&A outstripped European-targeted deals, which plunged 48 percent as worries about the creditworthiness of Greece and other European countries rattled markets. U.S. M&A rose more than a fifth to $190.7 billion.

Highlighting the increasing clout of emerging markets, M&A in these economies made up 32 percent of activity, up from 18 percent last year.

Two of the quarter’s 10 biggest deals were telecommunications tie-ups by billionaires based in the developing world.

In Latin America, the world's richest man, Carlos Slim, moved to consolidate his telecommunications empire under his flagship America Movil SAB de CV AMXL.MX. Sunil Mittal's Bharti Airtel BRTI.BO of India placed a $9 billion bet on Africa, buying operations in 15 nations from Kuwait's Zain ZAIN.KW.

LEVERAGED BUYOUTS

Schlumberger Ltd's SLB.N $11 billion-plus buyout of rival oilfield services company Smith International Inc SII.N was the biggest in a string of energy and power deals, which made it the single busiest sector, at 20 percent of global M&A.

That contrasts with early 2009, which was dominated by pharmaceutical mega-mergers and bank bailouts.

Stephen Trauber, global head of energy at UBS, said energy companies were enjoying renewed access to capital, were being drawn to new deals by still-attractive valuations and in some cases were rationalizing their own portfolios.

Overall, bankers said financing was improving and pointed even to a nascent recovery in leveraged buyouts.

"For the right buyers, acquisition financing is readily available," said Jeffrey Kaplan, the New York-based global head of M&A at Bank of America Merrill Lynch BAC.N.

Still, while Bharti-Zain was funded by $8.3 billion of bank loans, some of the other major deals relied heavily on equity. Schlumberger-Smith was an all-stock deal, while Prudential’s Asian deal relied on a $21 billion rights issue, the biggest ever cash call to fund an acquisition.

“You are seeing pent-up demand after a lengthy period of very slow M&A activity, coupled with a strong equity market,” said Frederick Green, co-chairman of M&A at Weil, Gotshal & Manges LLP in New York, the quarter’s top-ranked law firm.

“That has created an ability to enter transactions using stock as currency with a greater degree of confidence by participants,” Green said.

Deals involving private equity firms rose 70 percent from a very low base last year, to reach $29.1 billion, although the figure was barely half the $55.3 billion logged in the last quarter of 2009.

In private equity, Bank of America’s Kaplan added: “Getting to the $5 billion LBO level happened more quickly than we expected. We will surpass $5 billion and may very likely see $10 billion.”

The data are preliminary, covering the year through March 25.

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