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Deal environment improves for all but largest mergers

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The fourth quarter marked a long-talked about turnaround in the market for mergers.

Global M&A volume soared 40 percent in the quarter, hitting its highest level since the financial crisis of 2008 set in, by one estimate. We're seeing lots of confirmation of this general sentiment. A great example is the strong earnings from Evercore.

Earnings excluding special items surged to $35.3 million, or $0.81, topping the average analysts' estimate of about $0.52. The big driver was the bank's deal-making units. For the fourth quarter, Evercore rang up $195.5 million in investment banking revenue, compared with $92.6 million year over year. Evercore advised on deals including auto lender Ally Financial Inc.'s $4.1 billion sale of its Canadian assets to RBC and MetroPCS Communications' planned merger with T-Mobile USA.

Bloomberg, however, notes that despite the resurgence, "history shows that the largest mergers are often more trouble than they're worth. About two-thirds of company takeovers exceeding $20 billion since 1996 -- including the unions of Pfizer Inc. and Pharmacia Corp., Sprint Corp. and Nextel Communications Inc., and Daimler- Benz AG and Chrysler Corp. -- generated losses for the acquirer's shareholders, according to data compiled by Bloomberg. The 78 buyers lagged behind the MSCI World Index by a median of 13 percentage points in the three years after completing the transactions, falling 21 percent, the data show."

That said, we're likely to see more big deals, especially if Dell is able to pull off an LBO. One might argue that the prospects for better returns are in place, as target prices, while getting pricier, remain favorable, as interest rates remain low and as the economic cycle turns up. Bankers will no doubt be making a better case for the returns on big deals going forward.

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