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European M&A value down 70 per cent from 2008

The European M&A industry saw 2,348 transactions valued at USD251.3bn in the first three quarters of 2009, a decrease of 70 per cent by value and 47 per cent by volume from the same period in 2008, according to mergermarket.

According to the report, European M&A activity makes up 24 per cent of global activity by value and 38 per cent by number of deals announced so far this year, compared to 42 per cent and 43 per cent respectively for the same period last year.

Thirty nine per cent of the total value of European M&A so far this year – including six of the ten largest European deals this year – has taken place in the energy, mining and utilities sector, up from 20 per cent for the same period last year.

Benelux has overtaken the UK & Ireland as the largest M&A market so far, contributing 20 per cent to the total value of European M&A, up from 11 per cent at the end of last year. Iberia meanwhile has experienced the largest increase as it contributes 17 per cent to Europe’s total value, up from seven per cent at the end of 2008.

Goldman Sachs is still the most active financial adviser by deal value, advising on 69 transactions valued at USD117.5bn so far this year. The firm has an impressive USD37bn lead over second-placed Credit Suisse.

Private equity M&A investments in Europe continue to be extremely low. European buyout activity is down 84 per cent by value and 56 per cent by volume for the first nine months of 2009 compared to the same period in 2008 – only 400 transactions announced valued at USD19.8bn.

European mega deals (>USD500m) contribute only 17 per cent to the global total value so far, down from 35 per cent at the end of 2008. Of these, buyouts only make up four per cent, down from ten per cent at the end of 2008, indicating how Europe is buyout-reliant for mega deals.

In North America, 1,977 deals have been announced so far this year with a combined value of USD493.1bn, a drop of 40 per cent and 33 per cent in volume and value terms respectively, when compared to the same period last year.

The average number of deals per month stands at approximately 220 for 2009 to date, the lowest level since 2002 which saw an average of 206 deals per month, and far from the peak of 432 deals per month achieved in 2007.

However, the report says optimism is rife as recent deal activity seems to be signalling a welcome return to merger Mondays. In what is usually a slow month for M&A, the last two Mondays in August accounted for USD16.2bn worth of deals including Walt Disney’s USD3.9bn buy of Marvel Entertainment and Baker Hughes’ USD5.5bn deal for Delaware’s BJ Services.

The trend looks set to continue as Xerox announced its USD7.4bn takeover of Texas based Affiliated Computer Services this week, while last week began with Dell’s USD3.8bn takeover of Perot Systems.
While there is much talk of potential deals, announced deals will continue to be centered in sectors such as energy, technology, and pharmaceuticals. Caution seems to be the order of the day, with deals taking longer to execute despite improving credit markets and a seemingly recovering economy. Yet a healthy pipeline indicates a busy winter for the advisory community.

Asia-Pacific M&A activity continues to fare better than in other regions, with 1,429 transactions announced with a total value of USD225.3bn – a drop of 24 per cent in value and 22 per cent in volume on the same period in 2008, as opposed to global drops exceeding 40 per cent.

The upward trend in the region’s contribution to global deal-making also continues, accounting for 22 per cent of global M&A value and 23 per cent of global M&A volume this year to date, up from 15 per cent and 18 per cent respectively for the first three quarters of 2008. Aggregate deal value in Asia-Pacifi c exceeds that in Europe for the second quarter running.

More transactions in the energy, mining and utilities sector have lapsed in 2009 than any other sector. During the first nine months of 2009, the region has seen the lapsing of 19 deals worth USD25.8bn in the sector – making up 64 per cent of the total value of lapsed Asia-Pacific deals of USD40.1bn.

Two Sino-Australian deals – the USD11.8bn tie-up between Chinalco and Rio Tinto (excluding a USD7.2bn convertible bond component), and the USD2.4bn deal for Oz Minerals by China Minmetals – failed to materialize after heated debates in Australia on national interest in the country’s national resources. In China, regulators stopped the
USD7.4bn bid for SDIC Electric Power by SDIC Huajing Power.

With continued consolidation among South Korean enterprises, the country overtakes India to become the fourth largest M&A market in Asia-Pacific in terms of both deal value and deal volume this year to date, with 136 deals valued at USD14.2bn.

Investors are keeping close eyes on several expected Chinese outbound deals. While Geely Auto gears up for a USD2.5bn bid for Volvo against two rival bidders, Sichuan Tengzhong tries hard to persuade regulators in China to approve a USD500m offer for GM’s Hummer. Meanwhile, Sinochem has entered into a Heads of Agreement on a USD3.3bn offer for Australia’s Nufarm. Elsewhere though, India’s Bharti Airtel’s USD23bn deal with South Africa’s MTN has been called off as necessary approvals were not granted.

After a surprise performance by China’s CITIC Securities in H1 2009, Morgan Stanley once again tops the financial adviser league tables for Asia-Pacific (ex-Japan) by both value and volume with 35 deals valued at USD24.9bn. UBS follows closely by value, and Ernst & Young by volume.

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