Friday, November 09, 2007

The $1 Trillion M&A Bloodbath

November 9, 2007, 8:59 am
Posted by Dana Cimilluca,
How big will things get in the M&A market?
There seems to be a consensus shaping up among mergers-and-acquisitions bankers that deal making volume next year will fall by something on the order of 20% because of the turmoil in global financial markets. Reuters yesterday spoke to a number of prominent bankers, and they point to a 20% decline in the U.S. and something more moderate elsewhere in the world. One of them, Stefan Selig of Bank of America, predicts that could put overall activity in 2008 back to where it was in 2005.
Not so bad right? 2005 was a pretty robust year, with nearly $3 trillion of deals struck worldwide. But looked at another way, the picture isn’t so pretty. With 2007 already crossing the $4 trillion mark, a retreat to 2005 levels would mean the loss of more than $1 trillion of deal flow. Based on a very rough calculation of how much the average deal yields in fees, that means investment banks would have to find $5 billion in revenue elsewhere.
And that is not a very attractive prospect given the horrifying performance right now of other Wall Street businesses like fixed-income trading.

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