M&A Forecast for 2010 — update
Well, we’ve got more than one quarter of the year gone. Is it really possible to see more clearly how 2010 will develop for the M&A markets? I think so, and one reason is the behavioural aspects of the market that cause it to be ‘sticky’, as discussed several weeks ago in an article I wrote for the Financial Times entitled ‘A tough challenge for M&A markets‘. There is a slowly growing confidence in business, bouyed by the rising equity markets, but for M&A deals to be announced, an even greater level of confidence is required. This will take time.
But it is useful as well to look at the activity for the first quarter. I believe that it demonstrates that we have bottomed out. The annualised volume for the first quarter globally for announced deals is still at around $2.2 trillion, which is the level of 2009. First quarters, as we have shown before, tend to be the strongest quarter (see our posting on 8 February 2010) and in fact represent up to 50% of the mega-deal (but not total) volume. We’ve not seen too many of these mega-deal announcements, which just confirms my belief that the confidence needs to return first, especially for those huge headline deals.
Nevertheless, the people I talk with are talking up the backlog of deals. So there’s a lot of planning for the right moment. One of my favourite reports on trends in the market is Intralinks‘ quartely Deal Flow Indicator. They note that March 2010 deal flow was up 25% over February which itself was up 5% over January. The trend is thus right. Except for Europe, all regions saw an increase. Notably, the deal flow level in Q1 2010 was at the same level as their benchmark Q1 in 2008.
Another indicator of growing confidence in doing deals is the increased percentage of cross-border deals. In a study (‘Deal Makers Continue to Outperform the Market’) conducted by Cass Business School for Towers Watson, it was reported that cross-border deal activity rose to 36% of all completed deals in the first quarter, which is up from 24% a year ago. These deals are more complex and typically more difficult to get approval, and thus an increase in this activity does indicate confidence. Another positive trend is the re-emergence of private equity buyers, albeit still no where near the level of activity seen several years ago.
Net-net? I see the markets staying at around this level through 2010. That in and of itself is an accomplishment as many were looking for a double dip in 2010.
Intelligent Mergers 
Geared towards the comment on cross border deals; would you say those deals have been mainly driven by private equity buyers focused towards diversification or capturing high growth opportunities OR propelled by strategic MNC’s seeking to expand operations, enter markets, etc. in emerging economies?
Also, I’m keen to learn how you think behavioural factors are affecting such trends.
Heyaw
Friday, 25 June 2010
Year-to-date, the cross border deals have principally been strategic. Only just now are the PE houses coming back to the market in any substantial volume.
Regarding behavioural finance effects, please see my posting from 4 January (‘Mergers & Acquisitions and Behavioural Finance’) which is here: https://intelligentmergers.com/2010/01/04/mergers-acquisitions-and-behavioural-finance/
Scott Moeller
Thursday, 29 July 2010