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M&A weak in first half of 2009, says mergermarket

Despite the upturn in the financial markets over the last quarter, the first half of 2009 was a weak half-year for mergers and acquisitions across the board, according to mergermarket.

Despite the upturn in the financial markets over the last quarter, the first half of 2009 was a weak half-year for mergers and acquisitions across the board, according to mergermarket.

Total deal volume – at 3,800 transactions – was down 47.4 per cent on the same period last year, and total deal value – USD705.7bn – down 43.6 per cent.

Compared to the most active half year period, H1 2007, value and volume figures have decreased by 66 per cent and 51.6 per cent respectively from the peak of 7,880 transactions valued at almost USD2.1trn.

Quarter on quarter analysis for 2009 shows that deal volumes have remained steady so far in 2009, which may indicate that M&A volumes have bottomed out.

According to mergermarket, the market has slumped at all levels, but the biggest hit is seen in the upper end of the mid-market (USD250-USD500m) where total global deal value is down 67 per cent on H1 last year and volume 64.6 per cent.

European activity at this level is particularly low – decreases of 70.2 per cent and 67.4 per cent respectively.

Large cap deals (valued over USD500m) in comparison are down 52.2 per cent by volume and 38.7 per cent by value.

The US has only experienced a 9.6 per cent fall in large cap transactions by value, but six of the ten largest deals for 2009 involved US targets.

Lower mid market M&A activity (USD10m and USD250m) from 2003 to 2007 on average accounted for 41.8 per cent of deal flow by half year in Europe and 47.4 per cent in North America. From 2008 to H1 2009, the lower mid market only makes up on average 34.9 per cent of total M&A deal flow by half year in Europe and 37.1 per cent in North America.

The Asia-Pacific region has remained steady, where lower mid market activity continues to account for over 55 per cent of overall M&A activity in the region.

A total of 223 insolvency transactions have been announced globally for the first half of 2009, up from just 90 for the same period in 2008 and an increase of almost 148 per cent. The level of insolvency deals peaked in the second quarter with 112 transactions announced, which is 27.3 per cent higher than the last peak of 88 deals in the second quarter of 2004.

mergermarket says M&A tends to be a lagging indicator and it is likely that the rebound in the equity markets from the March 2009 lows and the economic green shoots emerging in the US and in Asia will be followed by a spurt of deal-making. Companies in the technology sector such as Microsoft and Dell have raised money in the debt markets and have flagged M&A as a possible use of proceeds, indicating that this sector will follow healthcare as a happy hunting ground for cash-rich companies.

Large private equity deal flow remains virtually non-existent in 2009 so far. However, the level of interest shown by buy-out firms in Barclays’ iShares as well as reports of buy-out interest in Anheuser Busch/InBev’s eastern European assets, and Apollo Management’s USD538m joint bid with The Carlyle Group for BPP all bode well for M&A in the second half of the year.

Goldman Sachs, Morgan Stanley and JPMorgan continue to dominate the global M&A advisory league tables, positions which are largely based on their roles advising on the large US healthcare takeovers announced in the first half of 2009. UBS Investment Bank was the most active advisory firm to date globally, having advised on 90 transactions valued at USD64.1bn. Morgan Stanley and Lazard also improved their positions from the 2008 rankings, as did Japanese advisory firms Nomura, Daiwa Securities and Mizuho Financial.

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