2010 M&A Forecast
It’s December and the M&A market is mostly closed for the year. This isn’t the month when many deals are done (although I would love to be surprised by a big announcement in the next several weeks, it would be a surprise!). We’ve discussed this recently here, where we showed that it is rare for deals to be announced in the last quarter of the year. Note by the way that this dearth of year-end announcements is related to the very large (mega-) deals, as smaller ones don’t show such an historical trend.
In any case, the focus is now on 2010. Will it be better than 2009? 2008?
Of course, my crystal ball is as foggy as anyone’s. However, ever willing to stick my head out, here goes:
First, despite an overall lack of European outbound M&A in 2009 (Financial News reported in mid-November that volume of such deals was its lowest since 2004), I believe the interest in globalisation hasn’t diminished in the board room, although the appetite to take on such risks has decreased. Especially in Europe, it appears. I believe as the new year starts and 2008 and 2009 are put behind us, the interest in growth will reappear including acquisition as a means of such growth.
Second, financial sponsors (hedge funds, private equity funds, venture capitalists) will return. In the first nine months of 2009, only about 3% of global M&A volumes were from these groups — the lowest since 2000 and well down from the approximately 25% of 2007’s volume. Of course, they helped drive the last merger wave that ended in 2007 (indeed, one-third of all deals in private equity’s 30-year history took place in 2006 and 2007). Check out this report from Private Equity News. Even a small increase in this percentage in overall terms could be a catalyst to the growth of M&A in 2010. I may eat my words, but I don’t think it can go any lower what with the backlog of money to invest in the pipeline (it was reported that at the start of 2009, there. It has to go somewhere, and the financial sponsors are very reticent to return it to their limited partners!
Third, the emerging markets remain of great interest. China’s M&A market (again, according to Financial News) is up 6% on last year, which makes it one of the bright spots in the global M&A market. Not just China, but other Asian markets will be places where firms need to expand. I actually believe this trend may be the catalyst to the next merger wave when it appears — hopefully in 2010!
Fourth, and perhaps even most important, there’s optimism in board rooms. We noted in an earlier blog (see: ‘What Next in M&A‘ and the related research from Intralinks) that there’s an expectation now that more deals will be done next year by a majority of board-level executives interviewed. This can be a self-fulfilling prophesy, as the M&A market rises and falls based on the willingness of boards to approve deals and their confidence (usually misplaced, by-the-way, even in rising markets) that the deals will increase profits, market share, shareholder returns, etc.
Now, what about the timing? I hear from many advisors that the backlog isn’t great. This would indicate that we won’t necessarily see an immediate increase in deal. Offsetting this is another fact from talking to those advisors: most are busier than they have been in a couple years. Part of this busy-ness is due to the reduction in the size of the M&A teams in the past 18 months, but this doesn’t explain it all as even those teams not reduced (and yes, there ARE some around in the more forward-looking advisory firms) say they are working flat out. I’ve been trying to meet up with one of them for the past several months and it was never was possible in evenings or even weekends, and we finally had to settle for a 7:30am breakfast earlier this week — at which I was informed that she hadn’t had more than 5 hours sleep in any day in the past three weeks. Although probably not good for her personal health, it probably IS for the health of the advisor’s bottom line and the M&A market in general.
And let’s not forget as well that the debt markets are not fully open again for acquisition finance. No one expects an era of easy financing to return anytime soon, but it does have to ease up somewhat for the market to return to anything like the volumes of a few years ago.
Anyone else with thoughts on the timing?
Intelligent Mergers 
Some more uptodate information on M&A statistics can be found at http://www.imaa-institute.org/statistics-mergers-acquisitions.html
IMAA
Monday, 6 February 2012