Global M&A activity half of 2007 levels

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Global M&A activity has slumped by a further 12% in 2012, thanks to the ongoing eurozone crisis and the impending “fiscal cliff” in the US, Ernst & Young research reveals

The total value of deals was also down, by 8%, to a projected $2.25trn. This represents a fall of 47% from the height of the M&A boom in 2007, just before the financial crisis, when the total value of deals reached a record $4.3trn.

 And the firm is predicting that M&A activity will remain depressed throughout 2013, with risk averse company executives continuing their “wait and see” approach.

According to Pip McCrostie, E&Y’s global vice chair, transaction advisory services, acute caution was the prevailing M&A sentiment in 2012.

”The eurozone crisis continues to impact nine global companies in every 10 and in 2012 we saw its impact reduce the appetite for M&A – even in many formerly deal-hungry emerging markets.

“Limited deal activity will likely continue through 2013, especially if we don’t see a clear, long-term resolution to the US fiscal cliff in the US.”

E&Y reports that the rapid rise of M&A in the BRIC nations from 2007 to 2010 has not lasted although they still performed better in 2012 than the eurozone countries. In 2007, BRIC accounted for 7% of the global M&A market by value, while the eurozone countries contributed 21%; in 2012 the positions had reversed with the BRICs more than doubled to 15% and the eurozone down to 11%.

In 2007, there were five eurozone countries in the top 10 by value and only Russia from the BRICs. Now only Germany remains (ninth) while China, Brazil and Russia are all represented. The BRICs are also among the most popular investment destinations with China (1st), India (3rd) and Brazil (4th). The US came second and Germany fifth.

The sectors that were hardest hit in terms of deal volume during 2012 were asset management (down 18.5%), mining and metals and automotive (both down 18%). Telecommunications, insurance, power and utilities, and consumer products were not far behind.

“For M&A to really fire, we need a convincing resolution of economic events in the US and the eurozone,” McCrostie said.

“That would generate confidence as a result of greater stability, could narrow the valuation gap and help executives rediscover their appetite for inorganic growth.”

 

Julia Irvine

 

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