DealZone

from Breakingviews:

Goldman’s old-school Facebook deal sets new tests

Goldman Sachs' old-school Facebook deal brings a new set of challenges. The bank is raising up to $1.5 billion from clients to invest in the social network while putting in $450 million itself. Like Morgan Stanley's reported deal with online coupon service Groupon, it looks like classic merchant banking. With hot firms in the driver's seat, however, the banks could find themselves in for a wild ride.

Internet darlings, with their growth, profitability and cash, face little pressure to go public yet still have some use for what a fundraising can provide. So instead of an IPO, they rely on so-called D-rounds. This allows them to raise money at favorable valuations for internal use, while buying stock back from employees or early-round investors who want to cash out.

It's a calculated pay-to-play on the banks' part. By stumping up for Facebook and Groupon, Goldman and Morgan Stanley put themselves in a strong position to underwrite the eventual IPOs. They make the tech firms happy by providing stronger headline valuations, in Facebook's case $50 billion. And the intermediaries score points with their well-heeled clients by enabling them to put money into hard-to-access investments.

Finally, the deal appears to align the interests of Facebook, Goldman and its customers. During the dot-com bubble, stocks of unprofitable -- and often revenue-less -- companies were floated cheaply to orchestrate a first-day pop. But when Facebook does go public, Goldman should be well incentivized to convince the market Facebook is worth well north of $50 billion.

The arrangement isn't all rosy, though. Regulators may question whether Goldman's Facebook collective skirts the spirit of a rule that private companies either disclose more information or go public once they reach 500 investors. What's more, it creates a potentially risky triangle of expectations that may make setting a stable IPO valuation more difficult.

Deals wrap: Exchange consolidation

A man is reflected in the sign outside the Australian Securities Exchange (ASX) building in central Sydney August 23, 2010. REUTERS/Daniel Munoz Singapore Exchange has agreed to an $8.3 billion deal for Australia’s ASX. The first major consolidation of Asia-Pacific exchanges faces regulatory hurdles, including getting Australia’s parliament to lift a 15 percent ownership cap on the ASX. *View article *View article on SGX’s CEO *View graphic on world’s top 10 exchanges *View WSJ article

Communications cable maker CommScope said it is in talks with private equity firm The Carlyle Group to sell itself. It is the latest sign of resurgent acquisitions for private equity firms, which are under pressure to invest billions of dollars of capital raised in the past few years. *View article

Wind farm owner and operator First Wind Holdings, which is planning a $300 million IPO this week, may be a risky bet in the current energy climate, write Clare Baldwin and Scott Malone. *View article *View IPOfinancial.com article

from Breakingviews:

Skype IPO may add dose of healthy hype to Valley

Skype's initial public offering may add a dose of healthy hype to Silicon Valley. The Internet telephony group's $100 million float should be red hot. While there have been several tech offerings this year, investor reception has been uneven. A bit of justified excitement over Skype's growth and its backers' gains is just what the Valley's capitalists -- and entrepreneurs -- need.

With hot companies like Facebook and Zynga ruling out public floats in the near future, that leaves growth investors hungry for the next big ticket. Skype obliges. It has 560 million registered users and continues to grow. It added 86 million in the first six months of the year. Moreover, it is in the black. Skype has totted up $116 million of adjusted EBITDA since January, and this figure could grow rapidly if the company succeeds in cracking the lucrative enterprise market.

Moreover, Skype is big. Place estimated 2011 revenue of $1 billion on the same multiple as Google, and the company may be worth more than $5 billion. That would be a huge gain for the private equity backers at Silver Lake who led the firm's carve-out from eBay, clarified copyright issues with Skype's founders and tweaked its software. They valued the firm at $2.75 billion at purchase in 2009.

M&A uptick expected – survey

A survey of top dealmakers found that merger activity will increase during the balance of 2010, a sharp contrast in sentiment from last year.

A survey conducted by Brunswick Group LLC found that 78 percent of respondents expect M&A activity will continue to rise, while 22 percent said it would stay at the same pace seen in the first quarter.

Mergers and acquisitions topped more than $520 billion in the first quarter, up 19 percent from the first quarter of 2009, according to Thomson Reuters. Emerging markets and energy-focused takeovers made up a growing slice of the activity in the first quarter. Still, merger volume dropped 16 percent from the fourth quarter of 2009.

Keeping score: Asian IPOs, Oz M&A, tech debt

Highlights from this week’s Thomson Reuters Investment Banking scorecard:

ASIA PACIFIC IPOs UP 65%
Malaysian telecommunications provider, Maxis Bhd, raised $3.3 billion in an initial public offering this week, the biggest IPO from a Malaysian issuer on record.  Asia Pacific offerings account for 59% of global IPO activity this year and total $49.2 billion for year-to-date 2009, a 65% increase over last year at this time.
In Asia, China International Capital Co, CITIC and UBS account for nearly 35% of overall IPO activity, by proceeds, this year while Morgan Stanley has lead managed the most offerings in the region, with 14.

AUSTRALIAN M&A TOTALS $130.9 BILLION
Australian target M&A activity totals $130.9 billion for year-to-date 2009, a 58% increase over the year ago period.  Deal activity in the materials, financial and industrial sectors accounts for nearly 80% of overall activity.
A bid for Melbourne-based Transurban Group, an operator and developer of electronic tolling systems by an investor group comprised of Canada Pension Plan Investment Board and Ontario Teachers’ Pension Plan for $8.9 billion topped the list of biggest deals this week.

HIGH TECH CORPORATE DEBT UP 34%
This week’s $4.9 billion bond offering from Cisco Systems brings year-to-date corporate debt volume in the high tech sector to $56.9 billion, a 34% increase over last year.  Ranking as the largest US high tech bond for year-to-date 2009, it also marks Cisco’s second debt offering this year.
As the global credit markets have rebounded this year, a number of high technology names have stepped into the bond market with multi-billion offerings including Hewlett-Packard, Oracle, Microsoft and IBM.

Weekends held hostage by M&A chatter

rtr1almWith Merger Mondays back in fashion, could “Freaky (Rumor) Fridays” be far behind, as Eric Savitz over at Barron’s Tech Trader Daily blog writes? Since this morning, there has been a steady stream of rumors — most of them originating in the options market — about who might buy whom. Not surprisingly, these are all tech companies, since tech is the one sector that has seen a flurry of recent deals, including Dell buying Perot Systems, Cisco buying Tandberg and Brocade shopping itself. A quick roundup:

    Blue Coat Systems option volume is up after Deal Reporter suggested Cisco might bid for it. NCR calls are up on rumors of a takeover bid, although it has not been linked to any company. American Superconductor jumps on rumors of an ABB bid. Riverbed Technologies could be acquired by Juniper Networks.

Another old favorite among tech gossips is also doing the rounds today — the idea of Microsoft buying Research in Motion. That one came from Alley Insider’s Henry Blodget (seems like he suggested the same thing in February too).

But as my colleague Wojtek Dabrowski, who covers tech, media and telecoms companies out of Toronto, says: “Microsoft could have bought RIM at $35, because that’s the low the stock hit in March of this year. The stock is now at $70 and RIM is under pressure from the iPhone. Such a deal makes no sense, though it could have in the past, especially given Microsoft’s continued commitment to Windows Mobile.”

Pricey Palm attracts attention

If you want to take a bite out of Apple’s piece of the staggeringly huge (but difficult to quantify in $$$ terms) smartphone market pie, you’d better either have the magical new “thing” or be willing to spend to buy it.

As Anupreeta Das reports, Palm – one of the stalwart originals in the mobile handset space — has remade itself into a terrific target with the success of its Pre. Palm’s stock got a jolt this week on talk that Nokia could be considering a bid. But as she explains, Palm may prove to be too pricey a purchase, even for those with deep pockets.

Since introducing the Pre, Dell, Microsoft, Nokia and Motorola have been mentioned as possible suitors. If one of these cash-rich companies was to bid for Palm today, it would be targeting a stock that has quadrupled this year. Complicating matters, “details on how many units it has sold are skimpy, making it difficult to value the success of Palm’s turnaround story,” she reports.

High-frequency trading: useless and manipulative?

Floor tradersThe explosion of interest in high-frequency trading has started to drag new faces to sometimes staid industry conferences. Traders who for years worked on algorithms and computer codes behind the scenes are stepping into the spotlight. They’re appearing on more and more panel discussions, feeling the need to defend their practice against the slings and arrows of politicians and regulators.

So far, they’ve managed to mix exasperation with good humor. The head of one high-frequency trading shop, speaking on a panel this week, said that if you believe everything you read in newspapers you might think the practice is “an unfair, highly profitable and socially useless trading strategy implemented by highly secretive and unregulated traders using superfast computers to compete with retail investors, manipulate markets and front run flash orders causing volatility in the financial markets and creating systemic risk.”

He argued that a more accurate definition of high-frequency trading would be, “a wide variety of highly competitive, low margin trading strategies implemented by professional market intermediaries who have invested heavily in technology that have the effect of making the markets more efficient by enhancing liquidity and transparent price discovery to the benefit of investors.”

Keeping score: UK M&A, Asian tech and US debt

Here are the highlights from this week’s Thomson Reuters investment banking scorecard:

Cadbury deal lifts UK M&A to $168.8 billion

The $19.3 billion offer by Kraft Foods for UK confectioner Cadbury lifted UK target M&A to $168.8 billion for the year-to-date period, an increase of 19% over last year. The transaction could rank as the second largest non-government acquisition in the UK this year after Xstrata’s $42.5 billion bid for Anglo American in June.

UBS, which advised on both the Cadbury and Anglo deals as well as the UK government investments in Lloyds Banking Group and RBS, leads the year-to-date UK target league table with $124.6 billion from 21 announced deals.

Keeping score: US leads M&A, Securitizations, National Express

An Iraqi worker adjusts an oil pipe at Nahr Al-Umran gas refinery in Al-Dier District, northern Basra July 17, 2009. REUTERS/Atef HassanHere are the highlights from this week’s Thomson Reuters Investment Banking Scorecard:

- US M&A Accounts for the Majority of Weekly Worldwide Activity

US M&A activity was worth $13.9 billion for the week, bolstered by a flurry of deal announcements ahead of Labor Day in oil and gas, media and pharmaceuticals.  Goldman Sachs and Bank of America Merrill Lynch each advised on just over $9 billion in deals this week.

 

- Government Program Lifts Weekly US ABS Volume to $16.4 billion

The weekly volume of US asset-backed securities totaled $16.4 billion, powered by $14.2 billion of offerings eligible for Term Asset-Backed Securities Loan Facility (TALF).  Multi-billion dollar securitizations from the likes of Citigroup, Bank of America and Ford brought year-to-date ABS volume to $110.5 billion, a 28% decrease from last year at this time when issuance totaled $154.1 billion.