Plenty of Fuel for Q3 M&A

by Marc Bastow | September 28, 2012 7:00 am

[1]For all the discussion about sluggishness in the global economy, the stock market was both active and profitable during the third quarter of 2012. And as always, part of the upward momentum was powered by merger and acquisition activity.

Indeed, it was a very busy quarter for the M&A world. According the The New York Times‘ DealBook[2], some 1,400 deals were struck this summer with a total value in excess of $200 billion.

That kind of activity doesn’t just come out of nowhere, and according to writer J. Michael De La Merced:

“Several mergers specialists, a surprisingly large number of whom were still in the office during the last week of August, say that confidence in corporate boardrooms and corner offices is rising. These bankers and lawyers cite many of the same refrains, including enormous amounts of cash on companies’ balance sheets and an acute need for growth, as primary drivers for mergers getting done. And they say that their pipelines of works in progress is still full.”

Clearly, merger activity is alive and kicking, and is likely to continue into the fourth quarter and beyond. Changes in the health care industry in particular, regardless of who wins the presidential campaign, will be more than likely, and the August acquisition[3] of Coventry Healthcare (NYSE:CVH[4]) by Aetna (NYSE:AET[5]) is a case in point.

The $5.7 billion ($42.08 per share) price tag Aetna paid for Coventry is an attempt to help Aetna in its expansion into the Medicare prescription drug and Medicare Advantage programs, both of which are Coventry specialities. The move will boost the revenue Aetna receives from government assistance programs, from 23% of total revenue to 30%.

Nobody had a busier time of it than Carlyle Group (NASDAQ:CG[6]), the Washington, D.C.-based asset management firm that put together four deals during the quarter worth over $5 billion.

Carlyle, which went public in April, made deals that included DuPont’s (NYSE:DD[7]) coatings business for $4.9 billion, photo agency Getty Images for $3.3 billion, Los Angeles-based asset management firm TCW Group from Société Générale (PINK:SCGCY[8]) for approximately $700 million and just this week, Walbro Engine Management, a global manufacturer of small-engine parts, for an undisclosed price. Carlyle has already done 19 deals this year with an estimated value of just over $14 billion. Keep an eye on it as the rest of 2012 plays out.

After a rocky two-year courtship, rental-car companies Hertz (NYSE:HTZ[9]) and Dollar Thrifty (NYSE:DTG[10]) agreed to a merger[11] worth $2.3 billion ($87.50 per share). The deal was in the crosshairs of U.S. government regulators concerned about consolidations in the industry. So, as part of the agreement, Hertz agreed to sell its budget brand Advantage for an undisclosed amount of money.

Activity was also robust in technology as IBM (NYSE:IBM[12]) agreed to acquire[13] employee and retention software maker Kenexa (NYSE:KNXA[14]) for $1.3 billion ($46 per share), a move aimed at helping IBM in the social software market. Chicago-based and privately held Thoma Bravo agreed to buy enterprise software provider Deltek (NASDAQ:PROJ[15])  for $1.1 billion in cash ($13 per share). Deltek will keep its headquarters in Herndon, Va., after the transaction closes.

The media industry got into the M&A mood as well, with Vivendi’s (PINK:VIVHY[16]) Universal Music Group purchasing[17] Citigroup’s (NYSE:C[18]) EMI Music for $1.9 billion. On the publishing side of the industry, struggling digital financial media company TheStreet (NASDAQ:TST[19]) bought rival The Deal for $5.8 million in cash to expand the content it can offer to institutional subscribers.

Finally, Facebook (NASDAQ:FB[20]), after what could only be described as a rough quarter, completed its acquisition of Instagram, coughing up $1 billion for the photo-sharing company.

Marc Bastow is an Assistant Editor at As of this writing he does not hold a position in any of the aforementioned securities.

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