M&a Market Prepares for the Chill to Set In

Michelle Remo, “Big 4″ observer
September 28, 2012 /

Following a year of continued macro-economic uncertainty, global M&A activity is falling with the level of completed deals reaching the lowest level since Q1 2010.

Global volume and value of announced transactions fell by 18% and 11% respectively in the third quarter of 2012, showing that despite a slight uptick in the previous quarter, the prolonged period of slowdown in M&A activity is not over yet, according to the Ernst & Young M&A Tracker.

Looking at completed M&A deals, the global level is at its lowest since the start of the M&A Tracker in the first quarter of 2010, with both volume and value of completions decreasing by 11% quarter-on-quarter. In yet another sign of global macro-economic uncertainty continuing to dent corporate confidence, M&A conversion rates are at their lowest point for a decade. For transactions announced in the last nine months, only 60% by volume and 42% by value went on to complete in the same period.

The Ernst & Young M&A Tracker, is compiled by Ernst & Young and the M&A Research Centre (MARC) at Cass Business School from six different transaction data sources, which are consolidated and compared to activity levels in Q1 2010 using a proprietary weighted-average methodology. 1(See notes to editors)
Dave Murray, Ernst & Young’s Europe, Middle East India and Africa (EMEIA) Transaction Advisory Services

Markets Leader comments: “The more positive outlook we saw earlier this year has dissipated, as the year has progressed the mood has cooled. But it’s not a bleak picture all over the world with some markets including Asia, remaining active.”

North America continues to shape the global M&A landscape

The North American region in Q3 provided 39% of globally announced transaction volumes. An even clearer trend emerges around value – with 53% of globally announced transaction value involving a North American target. The largest transaction announced in the region was CNOOC’s offer for Canadian oil and gas producer Nexen worth US$19b in total deal value according to Thomson One Banker.

In a stark reminder of the region’s economic woes, Europe as a whole saw a fall of 39% in terms of total announced transaction value during Q3 2012, with announced transaction volume dropping by 24% q-on-q. Looking at the Eurozone specifically, announced transaction activity fell again in this quarter, by 28% in terms of both volume and value. Despite this trend, the second largest transaction announced in Q3 2012 was intra-European, namely Volkswagen’s offer for Porsche.

Following a 13% quarter-on-quarter increase in announced transaction value and for the first time since the start of the M&A Tracker in Q1 2010, Asia surpassed Europe in terms of the total number of announced transactions. This is, however, less likely to be a reflection of a long-term shift — rather a result of the economic uncertainty in the Eurozone temporarily depressing M&A volumes.

The global volume of public target bids fell by 8%, but despite a fairly bleak picture overall, announced public bid value rose by 7% in Q3 2012. Following the trough of Q1 2012, all-cash payment deals have been on the rise for two consecutive quarters and currently comprise 72% of total transaction value for public targets.

After a fall in Q2 2012, the average number of days it takes to complete a public deal rose to an all-time high of 81 days. Despite the relatively flat levels of M&A activity in the public space compared to last quarter, the appetite for opportunistic bids appears to be falling as can be seen by the number of bidders per asset, the percentage of revisions of bids and the level of hostile activity, which all fell in Q3 2012.

Dave Murray comments: “Right after the crisis hit we saw huge volatility in the market and a consensus that this would present deal opportunities. But today, with deals taking longer to agree and longer to deliver, there is a more moderate and cautious approach and the deals getting done are driven primarily by strategic plans rather than opportunistic actions.”

Murray concludes: “Confidence has dipped once again and we are seeing a downturn in aspiration and ability to do deals. Leading corporates are focussing more on optimizing internal operations to drive growth, profit and volume. The issues in Europe won’t be resolved overnight, but when the tide does eventually turn, it’s these companies that will be in the strongest position to act.”


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