Panel Says Sovereign Funds Expected to Fuel M&A Activity

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 yesterday, according to Reuters.

 

Lazard Chairman and CEO Bruce Wasserstein, M&A attorney Martin Lipton, and Apollo Management founder Leon Black shared their views yesterday 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."

 

"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 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."