Deal Volume Falls, but Corporate Buyers Keep Rising

NYT DealBook, June 27, 2008:
Already, one report has noted doom and gloom in the deal-making world. Now Dealogic is adding its own take on the slump that has overtaken the world of mergers and acquisitions.
Global M&A volume fell 30 percent in the first half of 2008 from the same period last year, according to preliminary data just released by Dealogic. Much of the decline came from an 88 percent drop in private equity transactions.
But it looks like things may be on the upswing as strategic buyers are stepping in and doing increasingly larger deals now that private equity has exited the stage.
The first half of 2007 may be considered the Golden Age of M&A by financial historians. The credit crunch had yet to hit and banks were tripping over themselves to lend countless billions of dollars to buyout shops. The result was nearly $2.7 trillion worth of announced transactions. Deals in the tens of billions were commonplace, like the $45 billion buyout of power provider TXU.
In contrast, the first half of 2008 was marred by the failure of Bear Stearns, restricted lending, skyrocketing commodity prices and fears about inflation. But despite this, $1.87 trillion of deals were announced during that time. That is more than the volume announced for the entire years of 2001, 2002, and 2003.
Much of the deal volume stemmed from strategic buyers that were willing to pony up billions of their own capital to acquire a competitor. In fact, strategic M&A volume in the United States fell just 2 percent in the first half of 2008 compared to same period last year. InBev’s $46.4 billion hostile bid for Anheuser-Busch and Mars‘ $22.64 billion offer for Wm. Wrigley Jr. were two examples of mega-strategic deals that were announced in the first half of the year.
Many deals were done in non-cyclical sectors that are somewhat protected from a downturn in the economy. Consumer products, telecom, and food and beverages were the sectors that saw the most deal volume in the United States. That compares to last year which saw financial services, real-estate, and utilities lead the way.
So don’t pity the bankers; there are still deals getting done and fees to be reaped. Goldman Sachs was again the top dog in global M&A advisory, announcing $530 million worth of deals through June 26th of this year. Morgan Stanley, which was nipping at Goldman’s heels last year, was slammed, falling to number six in the league tables and announcing half of Goldman’s M&A volume at just $278 million.
But in Asia, the only region that showed growth in M&A volumes, with a 5 percent gain over last year, Goldman was not even in the top five. Leading the pack was JPMorgan Chase, with $61 billion in announced deals. In a sign of the times, newcomer China International Capital swept onto the stage at the number four spot, with $47 billion in announced deals.