The M&A Recession: A Recovery Is Still a Ways Away

By Stephen Grocer, WSJ DealJournal, August 4, 2010:
Let us know if we have asked this before, but is the M&A market in for a recovery in second half?
A rash of deals in the last two weeks of July pushed the month’s global announced deal volume to $224.6 billion–the highest monthly total this year. As such, the data sparked a bit of optimism about the prospects for deal making for the second half.
Overall, global M&A is up 13% this year, and deal making last month was higher in every region. After two years of falling deal volume, that is welcome news to M&A professionals.
Yet hopes for a M&A recovery have been dashed before. M&A activity jumped in the fourth quarter last year. But the recovery proved fragile. What was the first half’s biggest transaction–Prudential PLC’s purchase of AIA–fell apart. Europe’s debt crisis put a frost on deal making as worries that the global economic recovery would falter grew.
While concerns about Europe have retreated somewhat thanks to the stress tests on the Continent’s banks, handwringing about the strength of any economic recovery hasn’t. A host of economic data this week has suggested that the recovery is weaker than previously forecast. On top of that, a number of well-known investors are preparing for a period of falling prices.
Also, a closer look at the M&A data provides a less-than-overwhelming picture that a robust recovery is around the corner. For example, two of the biggest deals–BP’s sale of oil and gas fields to Apache for $7 billion and Caja Madrid’s acquisition of Bancaja–were driven more by the distress of the seller was by the confidence of the buyer. And U.S. M&A activity remains sluggish, down 5% from the same period last year.
As Deal Journal has said before, until companies gain more confidence in prospects for the global economic recovery, M&A is likely to remain muted. July didn’t dissuade deal watchers of this view.