The Thin Gruel of Rising M&A Volume

Alessandro Pasetti, of Dow Jones Investment Banker, reports:
The banking industry remains in a regulatory flux and there is thin gruel for rainmakers contained within Dealogic’s preliminary end-of-year data out today. A sharp rebound in credit is necessary to spur M&A on a large scale. That still feels a long way off, and may never reach the pre-credit crunch heights.
The key Dealogic numbers are:
–Announced global M&A activity this year was nearly a fifth higher in dollar terms than last year, with emerging markets snatching a record-breaking third of the world-wide total and surpassing Europe for the first time.
–Cross-border transactions account for an increased proportion of the rally.
–North America, with $979.7 billion of deals, is ahead of all. Japan’s deal volume is down 36% year-on-year to $90 billion, the only country bucking the trend of an M&A pick-up across the globe.
–Energy led the industry ranking for the first time on record, having recorded its highest yearly volume ever. The figure is skewed by the $42.6 billion acquisition of Brazilian oil & gas assets by Petrobras, the largest deal of the year.
–Emerging-market volume reached $876.9 billion in 2010, up 56% from $561.2 billion in 2009. It accounted for 32% of global M&A, the highest share on record. The so-called BRIC nations (Brazil, Russia, India and China) accounted for 52% of emerging-market volume.
–Financial-sponsor buyouts totaled $183.8 billion in 2010, up 74% from $105.5 billion in 2009. Secondary buyouts reached $56.7 billion in 2010, the highest since 2007.
–Cross-border volume reached $969.2 billion via 9,573 deals, up 62% from $598.6 billion via 8,328 deals in 2009. Emerging markets accounted for 35% of total cross-border volume, at $336.3 billion.
Fortunes over the next year or two ride on whether banks will get the loan engine firing on all cylinders for clients across the rating spectrum. Of course, lending conditions by financial institutions have eased recently, but it certainly doesn’t feel as if a credit splurge is around the corner.
As growth stalls in western economies, M&A will struggle to record a significant rebound next year, with activity likely to be driven by defensive moves. Defensive, opportunistic, strategic. It doesn’t much matter to a banker what results in fees, though arguably a vigorous deal-making world needs all three to be kicking around.
Slivers of light are appearing. Blackstone Group gets in gear to launch a $15 billion buyout fund, Apax is following suit, so private equity may provide the necessary fillip on the back of opportunities among distressed assets.
Then there are the emerging markets.
The BRICs are providing bankers with trends and M&A activity likely to keep them busy in the medium term. Growth potential remains strong in the group but there are political risks bubbling up and surging competition for mandates. This suggests only the few with scale will emerge victorious–and the Chinese banks, with longer-term aspirations to be as powerful as Goldman Sachs Group, will complicate that.
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