Relative calm results in inactive US M&A market
A 25 per cent fall in global M&A deals in the first half of the year suggests that any possibility of a fast recovery is out of the question. The fall was led by the US, which experienced a huge 44 per cent drop in M&A deals over the period and analysts claim that the region’s improving economy could be behind the inactivity.
In the first six months of 2012, the US M&A market fell by 44 per cent, hitting its lowest levels since 2003. The new figures from Thomson Reuters show that the value of M&A deals fell to just $288 billion during the period, which is the lowest since 2007. This fall is despitethe fact that there having been several large-value deals, such as Standard Microsystems’ purchase by Microchip Technology for $600 million.
So why are US businesses so disinterested in mergers and acquisitions at a time when values are low and cash piles are still relatively healthy after the stockpiling that took place during the recession? Some analysts claim that US dealmakers have been sitting tight simply because they can.
“The problem with the US M&A is people don’t feel compelled to do transactions, because things aren’t that bad,” explained Sullivan & Cromwell’s M&A managing partner, Joseph Frumkin. Speaking to Reuters, he added, “But people also don’t feel sufficiently confident about the future global economic position to have a high desire to do deals. When you combine these two things it creates low deal volumes.”
The picture was very different in Europe, which only saw its deal volumes fall by 7 per cent in the first six months. Analysts claim that the M&A market was healthier in European because there were a larger number of firms who had no choice but to ‘do something’ to stay afloat.
Thomson Reuters survey found that the majority of bankers predict a further three months of slow activity, predicting that progress will be slow for the remainder of the year. This is a marked downgrade from the forecasts for an improving 2012 after the slow first quarter.
Despite the slow market, there were a few sectors that looked stronger, including the energy and power sector, which accounted for around 19 per cent of total global deals. The value of M&A in the industry totaled $188 billion in the first half of the year. The materials sector also generated a large value of deals, totaling $141 billion. However, despite these healthy values, both industries saw a fall in deal volumes (28 per cent and 23 per cent respectively) compared with last year.
One sector that could soon be bucking the trend, however, is the semiconductor and microchip industry – following on from the high-value Microchip Technology deal. The Global Semiconductor Alliance announced earlier in June that 10 semiconductor manufacturers raised a combined $134 million in equity finance in May alone, up by 122 per cent on last year.
US semiconductor firms received some 78 per cent of this funding; suggesting that some deals could be on their way in the second half of 2012.