A November M&A Recovery? Appearances Are Deceiving

November 28, 2007, 7:30 am
Posted by Stephen Grocer, Deal Journal - WSJ.com:
As the months tick by since the credit crunch hit, one thing is clear — U.S. deal makers are left wondering where the party is.
With three days left in November, deal volume in the U.S. is down for a third straight month from a year earlier. Meanwhile, Europe and Asia both registered a jump in M&A activity.
All told, companies and private-equity firms announced $435.3 billion of acquisitions world-wide through Nov. 27, a 23% increase from the year-earlier period and up almost 45% from October, according to Dealogic. But let’s not crack open the champagne just yet.
While at first glance it would seem that the defibrillator paddles can be taken off the global M&A market, a closer look reveals that the outlook for deal making might not be so rosy. The reason? One deal –- BHP Billiton’s offer for Rio Tinto, which Dealogic values at $149.2 billion –- accounts for nearly a third of world-wide deal volume. Subtract that from the total, and November’s total represents a 5% decrease from October’s total, according to Dealogic. (Though with three days left in the month, November could close the gap.)
Compare that with April. Deal volume reached $599.3 billion that month, thanks in no small part to the Royal Bank of Scotland-led consortium’s $96.6 billion offer for ABN Amro. Subtract the ABN deal from the monthly total and you still have more than $500 billion in announced deals, and only two months in the past 12 would rank ahead of April.
Still, at $286.1 billion, November’s deal volume total would mark a healthy uptick from August and September.
Weighing down the global M&A market is the U.S., historically its main engine. In fact, there was little good news in November’s numbers for U.S. deal makers.
U.S. deal volume slid 73% from a year earlier to $51.1 billion, meaning that after hitting $84.1 billion in October, it has fallen back to the lows of August and September, according to the data. A sizable chunk –- about 37% — of that came from buyers outside the U.S. In a sign of the times, the United Arab Emirates, in terms of dollar value, led the way in November among foreign buyers of U.S. assets, with two deals valued at $8.1 billion.
And there is little hope that a recovery is around the corner. The credit markets, which just weeks ago seemed to be on the road to recovery, have weakened again. (Witness the postponed sale of loans related to the Chrysler buyout.) Talk of recession, which is hammering the stock market, may mean that companies won’t be in a buying mood this holiday season and beyond. And let us not forget the beating Wall Street’s banks are taking at the hands of the U.S.’s subprime-mortgage-related woes. It is unlikely they will return to a giving mood until after the subprime mess clears up.
Meanwhile, European deal makers have plenty to celebrate. European deal volume jumped 245% from a year earlier to $308.2 billion in November, according to Dealogic. That also marks the single largest monthly total of the past 20 months. And even if you subtract BHP’s offer for Rio Tinto, European deal making still jumped 78%.