Goldman Takes Lead in M&A List Spurred by Natural-Resource Deals

The purchase by Baar, Switzerland-based Glencore, the world’s largest publicly traded commodities supplier, will create a giant with $209 billion in sales and more muscle for making deals. Last year’s No. 1 tie-up, Kinder Morgan Inc.’s $37.6 billion agreement to acquire El Paso Corp. (EP), and four other top 10 mergers involved energy, metals and mining companies that combined to take leading positions in their industries, Bloomberg Markets magazine reports in its April issue.

Advisers say the Glencore deal may kick-start M&A in 2012 after the risk of a euro-zone collapse sidelined projects in the second half of 2011. For the year, deal volume rose by 4 percent to $2.3 trillion, according to data compiled by Bloomberg. M&A fees were a relative bright spot for bankers in an otherwise dismal 2011, growing 13 percent to $20.3 billion. Goldman Sachs earned $1.84 billion in advisory fees, retaining the top spot in Bloomberg Markets’ annual ranking.

“Last year was a bit of a roller coaster,” says Steven Baronoff, global head of M&A at Charlotte, North Carolina-based Bank of America Corp. (BAC), which ranked fifth on the fees list. “After a very positive first half, in the third quarter many companies put deal talks on hold because of the European crisis. The fourth quarter felt better, and that’s how we feel now.”

Confidence Driving Dealmaking

Dealmaking will pick up as the easing of stock market volatility gives companies more confidence, says Robert Kindler, global head of M&A at New York-based Morgan Stanley (MS), which took the No. 2 spot in the ranking. The Chicago Board Options Exchange Volatility Index, or VIX (VIX), fell more than 60 percent to 18.05 on March 5 from a two-year high on Aug. 8. Multinationals’ cash piles and the push for global expansion will also drive the M&A business this year.

“All signs point to a good year for investment banking and M&A,” says Kindler, who predicts that volume may expand 10 percent to 15 percent in 2012. “Earnings showed that the U.S. economy is much stronger than people thought. If the market will be derailed, it will be for reasons that nobody predicted.”

Advisers made money last year on cross-border deals and corporate spinoffs as well as natural-resource mergers, trends that are likely to continue in 2012. International mergers accounted for $1 trillion, or almost half of the total deal volume in 2011, the data show.

BHP Deal

In the ninth-biggest merger of the year, Melbourne-based BHP Billiton Ltd. agreed to buy Houston-based Petrohawk Energy Corp. for $14.9 billion in cash, betting natural-gas demand would increase in the U.S. Barclays Capital Inc., No. 8 in the ranking, and Scotia Capital Inc. advised BHP, while Goldman Sachs guided Petrohawk.

“A lot of M&A activity is driven by companies’ need to increase their top-line growth through greater exposure to more- attractive geographies and sectors,” says Piero Novelli, global co-head of M&A at Tokyo-based Nomura Holdings Inc., an Xstrata adviser on its merger with Glencore.

At the same time, companies are casting off non-essential businesses to rid themselves of bloat and distraction, Baronoff says. Dealmakers executed a record 278 spinoffs last year. Houston-based Marathon Oil Corp. (MRO) spun off Marathon Petroleum Corp. in June to focus on searching for and producing oil and natural gas.

Marathon’s Performance

The shares of Marathon Petroleum (MPC), which refines, transports and markets petroleum products, gained 28 percent from the beginning of the year through March 5. Marathon Oil stock increased 14 percent over that period, beating the Standard & Poor’s 500 Index.

While the Glencore-Xstrata tie-up gives advisers a shot of optimism for 2012, economic and political uncertainty may be a restraint on merger activity. The threat of a default in Greece still looms over global markets, and in the U.S., the outcome of the presidential election in November may determine whether taxes — and business confidence — go up or down.

“When you have this kind of fiscal and political uncertainty, it creates a lack of clarity and confidence that stymies dealmaking,” says Andrew Bednar, founding partner at Perella Weinberg Partners LP in New York. “So, right now a lot of CEOs are thinking about deals, but most are not doing deals.”

Still, shareholder pressure on companies to put their cash to work should continue to drive consolidations across industries and regions, says Anthony Armstrong, co-head of Americas M&A with Greg Weinberger at Credit Suisse Group AG (CSGN) in New York, which placed fourth in the ranking. Companies in the S&P 500 (SPX) had $2.8 trillion in cash and short-term investments as of the end of 2011.

“There are reasons for deals, and you can only hold off for so long,” Armstrong says. “We have a good pipeline, which makes us cautiously optimistic.”

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