WSJ DealJournal, September 11, 2007:
Need more proof of the impact the credit markets are having on global deal making? Look no further than the average size of deals announced last month.
With investment banks now balking at financing megadeals, the theory went that buyers would turn to the middle market to make deals. (See this post.) Data from August on the average deal size seems to bear that out.
Not only were the number of deals and deal volume down in August, but the average deal size tumbled world-wide to $121 million. That was the lowest average since November 2004, a 65% drop from July and a 32% slide from August 2006. Last month also had just one deal larger than $5 billion, the first time that had happened since September 2004, according to Thomson Financial.
Not surprisingly, the tumble in average deal size was most pronounced among private-equity-led buyouts, which fell to $197.8 million – a far cry from $881.8 million in July or even the $476 million in August 2006. It also represented the lowest average LBO size since February 2005, according to the data.
This was even more pronounced in the U.S., where the size of the average LBO deal tumbled to $239.6 million. By way of comparison, in only one other month this year (January) did the average buyout size fall below $1 billion and, at $748.5 million, January’s average still was more than three times as much as August.
Corporate buyers also announced smaller deals last month. The average size of strategic transactions globally fell 28% from a year ago to $114.4 million. That was the lowest since March 2005 and suggests – along with the fact that corporate deal volume fell to the lowest monthly total since January 2006 – that corporate buyers didn’t fill the void left by the now less-active private-equity firms.
In the U.S., the average size of strategic transactions did rise 6% from a year earlier, though it was down 26% from July.