M&A Volumes were up, but what’s happened?

Posted on Monday, 8 February 2010. Filed under: Commentary, Mergers |

Typically, the volume of deals in the first quarter of the year are higher than at other times of the year.  In fact, if you look at the largest deals since the mid-1990’s (all around $60 billion or more),over one-third of them were announced in January and almost half in the first quarter.  Obviously, we didn’t  hit the January figure this year, but could still be heading for the first quarter figure if markets settle a bit (perhaps the political interference this year has affected January).  Also, two-thirds of all these mega-deals were announced in the first half of the year. I’ve looked at the figures slightly differently (that is, all deals over £10 billion), and the figures aren’t quite as skewed, but still directionally the same.

The trend in the market had been up.  Intralinks produces an excellent report each quarter (‘Deal Flow Indicator‘) which looks at these trends.  They noted the strength of the market in the fourth quarter of 2009, driven largely by the following factors (taken with their permission verbatim from their fourth quarter report, issued in mid January):

  • Continued stability in the equity markets
    –– Dow Jones Industrial Average: Up 7% versus Q3 2009 and 16% for full-year 2009
    –– European Markets: DAX, FTSE and CAC up more than 5% versus Q3 2009 and more than 17% for the full-year 2009
    –– Asia-Pacific Markets: Hang Seng and Nikkei up more than 4% versus Q3 2009; Hang Seng up more than 40% for full-year 2009
    These gains in the equity markets have continued to help narrow the valuation gap that has existed between buyers and sellers and free capital sources globally.
  • Increased buying activity in Venture Capital/Private Equity-backed companies as a result of corporations’ stronger balance sheets and increasing cash reserves
  • Resurgence in financial sponsor activity
  • Thawing credit markets

But there are other factors involved as well, principally from the behavioural side that are holding back a strong resurgence.  More on this in another blog.

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