Thursday, July 01, 2010

The Double Dip M&A Recession

By Michael Corkery, WSJ DealJournal, June 30, 2010:
Coming on a turbulent week like this, the title of the Boston Consulting Group’s latest report seems a tad optimistic: “Accelerating out of the Great Recession: Seize Opportunities in M&A” reads the headline of the report released today.
In reality, deal activity appears to be doing anything but accelerating. If anything, it appears to be scraping along the bottom. U.S. announced deal volume is down 13% in the first six months of the year from the same period last year, according to Dealogic date released today. In Europe, deal volume is down 5%.
The numbers are even more depressing considering the year-over-year comparison stretches back to a period in 2009 when economy was reeling from the worst financial crisis since the Great Depression.
Still, BCG is optimistic that the conditions for a recovery are in place. Among them: Stable capital and debt markets (despite European problems), and an expanding global economy (though the Chinese juggernaut shows signs of slowing).
The folks at BCG aren’t alone in their optimism, though. The Organization for Economic Cooperation and Development declares in a report today that “International Investment Free Fall Comes to an End.”
OECD concludes that international M&A activity is on track to match last year’s totals:
International M&A investment in 2010 totals $300 billion, putting it on track to reach 2009 levels, ending a two year streak of steep declines in 2008 (down 21% from the previous year and 2009 (down 53%). This “could signal that the bottom on the cycle has been reached,’’ the OCED report concludes.
It was only a year ago
that bankers and consultants were making similar optimistic pronouncements amid last summer’s M&A doldrums. But after a short uptick in the fourth quarter–thanks to big deals like Kraft Foods’s acquisition of Cadbury– the bulls turned out to be wrong.
There may be some debate whether the global economy is headed for a double dip recession. The picture seems much clearer in the M&A world. By most measures, it appears that M&A is mired in the second dip of a double dip hiatus.

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