M&A Dropped Sharply in First Quarter, according to Thomson Reuters Business Law Advisor

Fri Apr 27, 2012 3:00pm EDT

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M&A Dropped Sharply in First Quarter, according to Thomson Reuters Business Law Advisor

Current conditions suggest activity may pick up in coming months

Eagan, Minn., Apr. 27, 2012 ­- Global M&A activity fell sharply in the first quarter, according to the M&A Trends & Insight for Lawyers report from Thomson Reuters Westlaw Business Law Advisor - M&A. 

M&A activity dropped in volume by 20 percent and the value of deals dropped by 33 percent compared with the fourth quarter of 2011. This continues a downward trend that began in the second half of last year. 

The largest declines involved private equity, which reversed a three-year trend of private equity accounting for an increasing proportion of deals. Private equity deal activity fell to its lowest level since Q1 2010, with value down 23 percent and volume down 21 percent compared to Q4 2011. The largest private equity deal in the first quarter was the $7.15 billion acquisition of EP Energy by an investor group led by Apollo Global Management, Riverstone Holdings and Access Industries.

The level of contentiousness in the deal environment eased in the first quarter. The Thomson Reuters Westlaw Deal Environment Index fell to its lowest level since Q3 2009, due to a decrease in withdrawn deals and a sharp decline in the number of hostile deals. The 52 percent decrease in hostile deals, in particular, suggests the effects of the financial crisis of 2008 continue to wane. However, reverse termination fees - the fee that a would-be acquirer is required to pay the target company in the event the would-be acquirer terminates the agreement - remained common in public deals involving private equity buyers. The Deal Environment Index takes into account the number of hostile deals and withdrawn deals, the time to complete deals, and a measure of deal complexity.

There were significant declines in deals in the U.S. and UK markets, as well as in Hong Kong and Singapore. Despite the decreased level of activity, some large transactions were completed, such as Cisco Systems' $5 billion acquisition of NDS Group. Activity increased in China, Japan, Brazil, France and Germany.

By industry, consumer goods and services, real estate and manufacturing recorded gains. Energy, financial services, and commodities showed decreases.

"Both cross-border and domestic M&A activity showed a marked slowdown across the globe in the first quarter," said Steve Obenski, general manager of Business Law Solutions at Thomson Reuters. "The volume and value of deals both peaked about a year ago, and have been declining somewhat steadily since then." 

Despite this generally bleak first quarter report, there are indications that deal flow could rebound later in 2012 if economic indicators continue in a positive direction. With large corporations holding approximately $1.5 trillion in cash reserves, in addition to an estimated $500 billion in untapped capital at private equity sponsors, acquirers can be expected to try to find ways to put their cash to work.

Obenski noted, "We wouldn't be surprised to see a pickup in activity later this year.  The makeup of deals continues to evolve.  As part of that, it will be interesting to see whether the share of transactions involving private equity has peaked in the near-term or will resume its upward trend."

For a copy of the M&A Trends & Insight for Lawyers report from Thomson Reuters Westlaw's Business Law Advisor, go to http://store.westlaw.com/business-law/special-reports

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