M&A in 2010: a Long, Slow Climb

Overall merger and acquisition (M&A) deal value and volume in 2009 ended the year 27% down on 2008, according to several new reports. The end of the year, however, showed signs that the recession is coming to an end and M&A is starting to pick up. Domestic activity was predicted to increase in the first half of 2010 as overcapacity in the industry spurred deals, but cross-border interest was not likely to return until increased global economic confidence in 2011.

The crisis resulted a dramatic increase in the number and value of insolvency transactions, which rose by 370% on 2008, according to Mergermarket. The US$95.5bn worth of deals worldwide almost totalled the value for the previous four years combined, according the M&A intelligence service.

Meanwhile the 543 bankruptcy deals in 2009 exactly equalled the 543 deals recorded over the previous three years combined.

The most badly hit sectors in the beleaguered financial services industry fell by up to 60%, according to research by independent advisor Freeman & Co. However, the report also showed the first signs of recovery in the industry, with increased activity reported in Q409.

According to Mergermarket’s figures, the last quarter of 2009 was the best quarter in value terms since the third quarter of 2008. With 2,523 announced deals valued at US$626.8bn, the quarter saw an increase of 35% over the same period in 2008; and of some 90% compared to the previous quarter. The quarter was also the biggest by value ever for Asian deals at US$177.1bn, 26% more than the previous high of US$141bn during the fourth quarter of 2006.

Despite reluctance by corporates to make deals, 2009 saw more very large deals than 2008 – seven deals valued at more than US$40bn, compared with three in 2008. The number of larger transactions involving assets under management (AUM) of over US$10bn also stayed relatively stable (27 in 2009 compared to 31 in 2008), while deals in the US$1-10bn range showed a sharper decline (49 versus 89). Meanwhile, private equity, firms deployed US$11.8bn in 55 financial services transactions in 2009, which was down sharply from comparable figures in 2008 of US$24.8bn in 138 transactions.

Sola Akinola, author of the Mergermarket research, told gtnews that 2010 would be a year of smaller deals as companies continued to struggle to fund larger acquisitions. “Technology is definitely an area where we would expect to see some additional M&A activity. But financing is still very hard to come by, and smaller acquisitions are easier to finance in the short term.”

He added that, although there had been something of a recovery, it would continue at a slow pace throughout 2010. “I don’t think there’s going to be a dramatic increase in M&A. The last quarter was a very good quarter but we’re looking at in relative terms to 2009, which was a pretty bad year.”

Freeman & Co. predicted that companies would reconsider their international operations, especially if small and with non-dominant market positions, divesting many to local competitors or private equity firms. Speaking exclusively to gtnews, James Hatchley, managing director and chief operations officer for Europe, said the calmer financial situation meant companies were now acquiring and divesting more strategically than earlier in the financial crisis: “Transactions will be more considered and less cut-throat in 2010.”


Related reading

New consumer banking head for Citi Asia Pacific