Although global M&A activity was up in the first half of 2011, news that a decline of 17.5 per cent was recorded between the first quarter of the year and the second quarter has caused some concern among dealmakers.
The new figures from the latest mergermarket report, published last week, showed that a total of $1,141 billion worth of global M&A deals took place in the first six months of 2011 – up an impressive 27 per cent on the same period a year before. However the figures obviously show that as the year progressed, the deals petered out.
The slower second quarter has been attributed largely to concerns about European sovereign debt and the generally turbulent global markets. The Q2 slump was led by the 36 per cent fall in US M&A deals, compared with Q1 activity. Much of the slowdown in the US is said to be due to dealmakers stalling over making important decisions. Steven Baronhoff, the head of global M&A at Bank of America Merrill Lynch, told the UK’s Financial Times: “There is just more uncertainty in the world in terms of fiscal difficulties, deficits, housing and consumer confidence.”
Despite the second quarter slowdown, the general feeling among analysts is that the slump is a glitch and that 2011 will proceed to welcome more mergers and acquisitions than last year. Mr Baronhoff said, “We’d describe it as more of a slowdown in the past few weeks, rather than a halt.”
The outlook looks reasonably strong in Europe, where mergermarket report figures show M&A activity rose by 54 per cent in the first half, to $383.4 billion. Bankers claim that after a flurry of large scale deals in the US in the first quarter of the year, Europe made a comeback in the second quarter with major deals such as Johnson & Johnson’s $21 billion takeover of Synthes of Switzerland. These large deals may change the landscape of some industries, which could, in turn, result in further mergers and acquisitions as rivals respond to these changes.
European stockmarkets are also showing a remarkably positive reception to deals – demonstrated by the fact that shares in car rental firm Avis Budget rose by 7.6 per cent earlier in July after it announced plans to buy out Avis Europe in a $1 billion deal.
Looking further afield, the Asia-Pacific region saw an active first half, recording a 7.5 per cent rise compared with 2010, to a total value of $164.9bn. Private equity was another area that bucked the trend for a slower second quarter, with buyouts totalling $131 billion – up 55 per cent from 2010 – signalling the market’s strongest first half since 2008.
Certain industries in the US are also more active than others in terms of mergers and acquisitions. Major deals such as AT&T’s deal to buy T-Mobile USA for $39 billion and Duke Energy’s merger with Progress Energy indicate that M&A is still very much seen as a good solution for generating top-line growth. These deals apparently prompted a large number of conversations among rivals in the utilities and telecom industries.
So, bankers may not be facing quite such a slow summer period after all – particularly from industries that may struggle to generate organic growth without deal-making. Mr Baranhoff put it succinctly when speaking to the FT. He explained that for firms operating in industries that expect the economic environment to remain challenging in the coming months or years, “it makes sense to think about transactions.”
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