NYT DealBook, June 27, 2008:
Gloom has descended over Wall Street once again. While the price of oil is rising, the health of the financial sector is flagging, taking yet another heavy toll on the markets.
And that has hit deal-making hard as well: Global mergers and acquisitions activity fell 35 percent in the year to date to $1.579 trillion, according to the latest 2008 data from Thomson Reuters. The pain doesn’t stop there: Mergers and acquisitions bankers are bracing for more job cuts as volumes fail to recover from their first-quarter tumble, and the markets seem unlikely to recover this year.
Among the reasons for the deal-making malaise, Reuters said, is that the credit crunch kept buyout firms away from large deals and economic uncertainty made companies reluctant to push the button.
Private equity buyout activity, which underpinned the recent M&A boom, fell 66 percent in Europe to $48 billion and slumped by 86 percent in the United States to $42 billion in the first half.
With inflation rising and no end in sight for economic woes in the U.S. and Europe, it seems unlikely that volumes will recover quickly to the record levels seen for the year until June 2007, observers said.
“We won’t see a boom like early 2007 again for another three or four years,” Hermann Prelle, joint-head of EMEA investment banking at UBS, told Reuters.
Several banks, including Citigroup and Goldman Sachs have already shed M&A jobs to try to adapt to the slower market, and there could be more cuts as the slowdown in activity eats into banks’ income.
In the U.S., the world’s biggest economy, a slowdown and bleak outlook were compounded this week as U.S. consumer confidence hit a 16-year low and housing prices suffered a record annual drop.
The slowdown that started with the credit crunch last summer has spread and is now undermining much of the economic stability in Europe and the U.S. that allowed the M&A boom.
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