BROTHER, CAN YOU SPARE ANOTHER DIME? PACE OF FINANCIAL SERVICES DEALS LAGS ’98: N.Y.-N.J. BANKING MERGER BIGGEST IN A QUIT QUARTER

Technology-related deals helped lift the overall merger and acquisition market to new highs in the first three quarters, but activity among financial services companies declined in number and value from the same period in 1998.

It’s tough to quantify the dollar decline among money managers and insurers because deal prices are often undisclosed. But among banks and finance companies, which are the most active, 311 deals worth $81.9 billion were announced through September, off sharply from the first nine months of 1998, which saw 350 transactions worth $201.1 billion, according to Los Angeles-based investment bank Houlihan Lokey Howard and Zukin’s Mergerstat.

“Domestically, deals are down and there is an absence of marquee landmark sales,” says David Silvera, director of mergers and acquisitions at Investment Counseling Inc., an investment management consultancy in West Conshohocken, Pa. “Buyers have become more discriminating and careful in how they approach and evaluate transactions.”

The complications that come from absorbing previous acquisitions have many financial services companies suffering “deal fatigue,” says Frank McMahon, a managing director with Lehman Brothers Holdings Inc. in Los Angeles and head of the investment house’s asset management group.

“A number of large banks have done big deals in the last few years and are focused on getting those transactions off on the right foot.”

In addition, lower equity values for financial services stocks have crimped stock swaps.

That’s in sharp contrast to the overall M&A market. U.S. companies announced 2,392 transactions during the third quarter, lifting the total number of deals for the first nine months of 1999 to more than 6,846, worth $992 billion, or 5% ahead of last year’s comparable period. Sales involving computer software, supplies and services companies continue to drive the M&A market, according to Mergerstat.

hands across the hudson

Bank and finance company deals still dominated the financial services market. Mahwah, N.J.-based Hudson United Bancorp’s planned $2 billion merger with Dime Bancorp Inc. in New York was the quarter’s biggest deal. And Chase Manhattan Corp. ended months of speculation over its search to push further into investment banking and stock-underwriting when it agreed to buy San Francisco’s Hambrecht & Quist Group Inc. for $1.22 billion.

In addition, Pittsburgh’s PNC Bank Corp., intent on increasing its fee income, agreed to pay $1.1 billion for First Data Corp.’s Investor Services Group. The business maintains shareholder records for more than $850 billion in assets, mostly in mutual funds.

Among money management deals, Swiss bank UBS AG signed agreements to pay up to $675 million for international wealth manager Global Asset Management Ltd. of London, and an undisclosed price for Allegis Realty Investors LLC, a Hartford, Conn., manager of $5.9 billion in commercial and farmland assets.

Minneapolis insurer Reliastar Financial Corp. has agreed to pay around $189 million in cash and stock for Pilgrim Capital Corp. of Phoenix. Later this month, Reliastar will fold its $4.4 billion Stamford, Conn.-based Northstar mutual fund business into $7.6 billion Pilgrim, which manages conservative stock funds.

Meanwhile, lender Countrywide Credit Industries Inc., which began buying a series of small mutual funds in 1997 to peddle to its home mortgage customers, agreed to sell off the venture to Western and Southern Life Insurance Co. The unit, which managed about $1.3 billion in total assets, had attracted just $1.6 million in net sales to its mutual funds through the first eight months of this year, according to Financial Research Corp. in Boston. The eight-fund group managed a combined $52 million. A Countrywide spokesman says the lender will seek sales alliances with established outside fund companies.