PHILADELPHIA (Reuters) - U.S. merger activity in the first quarter surged 21 percent in value from a year ago as private equity firms and corporate buyers shrugged off stock market volatility and poured money into sectors such as energy, real estate and financial institutions.
Globally, announced mergers reached about $1.2 trillion for the first three months, the strongest first quarter ever and only the third time quarterly M&A volume has exceeded $1 trillion, according to research firm Dealogic.
First-quarter merger volume in the U.S. totaled $428.7 billion, compared with $352.1 billion a year earlier, Dealogic said. But as the total dollar value of the deals rose, the number of transactions fell to 1,397, from 2,012 a year ago.
"We're in a very strong M&A market. There's a good probability we'll have a record year," said Jeffrey Raich, joint global head of M&A at UBS AG.
"The markets were a little choppier in the first quarter than we'd like to see, but the velocity of deal activity has continued," Raich said.
First-quarter merger volume in the U.S. slipped about 11 percent from the fourth quarter of 2006 as weakness in the stock market contributed to a slight pause in dealmaking, bankers said. Yet, merger activity rebounded quickly because of the overall health of the economy and the availability of money at favorable rates, bankers said.
"What's driving M&A are the same characteristics we've seen for the past 18 months -- the strong liquidity situation worldwide, inflation continuing to be low and prices by historical measures remaining right in line," said Dennis Hersch, JP Morgan's global chairman of mergers and acquisitions.
"It shows how resilient this market it -- the M&A market bounces back despite Amaranth last year, problems in the subprime market and fighting in the Middle East," Hersch said.
Last year, Amaranth LLC began liquidating after suffering energy-trading losses, marking the biggest-ever hedge fund failure.
Globally, merger volume in the first quarter rose 15 percent, with Europe showing a 2 percent rise and Asia Pacific showing the greatest increase of 42 percent, according to Dealogic.
"One buffer to the recent market fluctuations is that there are billions of private equity dollars that have to be deployed. These investors tend to be less focused on short-term volatility," Raich said.
"Additionally, strategic buyers are being rewarded in markets for smart deals and are thus becoming more comfortable engaging in meaningful M&A dialogues," Raich said.
The biggest deal of the first quarter was the proposed $31.8 billion acquisition of TXU Corp. TXU.N by a group of private equity firms. The deal marks the biggest leveraged buyout in history.
Goldman Sachs Group Inc. (GS.N) served as a dual role in the TXU deal -- it served as one of the advisers to the buyout team and its private equity arm, GS Capital Partners, will be among the investors in TXU.
Goldman led the closely watched rankings among the top advisers for U.S. mergers, followed by Morgan Stanley (MS.N) and JPMorgan Chase & Co. (JPM.N). Those companies ranked as the top three globally, as well, according to Dealogic.
Other headline deals during the quarter included IntercontinentalExchange Inc.'s (ICE.N) offer for CBOT Holdings Inc. BOT.N and the prolonged takeover battles for real estate firms Equity Office Properties Trust and Mills Corp. MLS.N.
"This M&A environment has been marked by broad participation. There's not a specific sector bubble risk like the TMT (tech, media, telecom) sector was in 2000. Today, there's broader participation and rotational balancing between hot sectors," Raich said.
"That's another mitigant -- if the market is declining -- I do think the fact that you're not reliant on any particular sector helps M&A activity in general remain healthy," Raich said.